LIBRARY 

OK  THE 

University  of  California. 


OIF^T.OK 


^Accession     SQ  9  ^  ^        ^^^ 


m. 


LIBRARY    OF    ECONOMICS    AND    POLITICS. 

RICHARD  T.   ELY,  Ph.D.,  LL.D.,  Editor. 


NUMBER  TWO 


THE 

REPUDIATION  OF  STATE  DEBTS 

A   STUDY 

IN  THE  FINANcTaL  HISTORY 


MISSISSIPPI,  FLORIDA,  ALABAMA,  NORTH  CAROLINA,  SOU  IH 
CAROLINA,  GEORGIA,   LOUISIANA,  ARKANSAS, 
TENNESSEE,  MINNESOTA,  MICHI- 
GAN, AND  VIRGINIA. 


BY 

WILLIAM   A.  SCOTT,   Ph.D., 

Assistant  Professor  of  Political  Econ  University 

OF  Wisconsin. 


NEW  YORK :  46  East  Folrteknth  Street. 

THOMAS    Y.    CROWELL    &    CO. 

BOSTON :  100  Purchase  Street. 


LIBRARY  OF 
ECONOMICS  AND  POLITICS 

EDITED   BY 
RICHARD  T.  ELY,  Ph.D.,  LL.D. 


LIBRARY    OF    ECONOMICS    AND    POLITICS. 

RICHARD  T.    ELY,   Ph.D.,  LL.D.,  Editor. 


NUMBER  TWO  0  AAjt   ^ 

-  X.- 

THE  (' 

REPUDIATION  OF  STATE  DEBTS 

A   STUDY 

IN  THE  FINANCIAL  HISTORY 


MISSISSIPPI,  FLORIDA,  ALABAMA,  NORTH  CAROLINA,  SOUTH 
CAROLINA,  GEORGIA,   LOUISIANA,  ARKANSAS, 
.TENNESSEE,  MINNESOTA,  MICHI- 
GAN, AND  VIRGINIA. 


BY 

WILLIAM   A.  .IfCOTT,  Ph.D., 

Assistant  Professor  of  Political  Economy  in  thb  University 
OF  Wisconsin. 

^uirivBRsiTr] 

NEW  YORir?'T?5=ES9T=^^URTEENTII  STREET. 

THOMAS    Y.    CROWELL    &    CO. 

BOSTON:   loo  Purchase  Street. 


^v 
c- 


i^f^f^ 


Copyright,  1893, 
By  T.  Y.  Crowell  &  Co. 


The  present  monograph  consists  of  chapters 
I.,  II.,  and  VII.  of  a  book  which  was  presented 
in  manuscript  one  year  ago  to  the  Johns  Hopkins 
University  as  a  Doctor's  thesis,  and  which  has 
just  been  published  by  T.  Y.  Crowell  &  Co.  The 
character  of  the  remaining  chapters  is  explained 
in  the  preface  which  follows.  The  selections 
herewith  presented  are  representative  of  the 
book,  and  are  separately  published  for  the  Johns 
Hopkins  University  in  order  to  meet  the  require- 
ments for  printing  a  Doctor's  thesis. 


6<)<^^3 


PREFACE. 


The  field  of  financial  history  which  is  covered 
by  this  volume  has  been  lieretofore  left  almost 
entirely  uncultivated  by  students  of  American 
finance.  With  the  exception  of  an  article  by 
Hon.  R.  P.  Porter  in  the  International  Review 
for  November,  1880,  and  another  contributed  to 
" Labor's  Cyclopaedia,"  by  Geoige  Walton  Green, 
and  afterwards  expanded  by  the  Society  for  Polit- 
ical Education,  as  Economic  Tract  No.  11,  very 
little  has  been  written  upon  it.  Neither  of  these 
articles  furnishes  a  statement  of  facts  complete 
and  exhaustive  enough  to  form  the  basis  of  ac- 
curate scientific  judgments,  and  both  of  them  omit 
the  discussion  of  important  questions. 

The  present  volume  treats  of  four  main  topics. 
Chapter  I.  presents  those  features  of  our  consti- 
tutional law,  state  and  national,  which  bear  upon 
the  subject  of  the  repudiation  of  State  debts,  and 


vi  pujbfack 

leads  to  the  conclusion  that  the  holder  of  a  repu- 
diated bond  has  no  efficient  means  for  enforcing 
the  payment  of  his  dues ;  Chapters  II.  to  VI.,  inclu- 
sive, describe  with  considerable  detail  the  history 
of  the  various  acts  of  repudiation  passed  by  the 
tAvelve  States  named  on  the  title-page;  Chapter 
VII.  attempts  a  scientific  interpretation  and  ex- 
planation of  the  facts  presented;  and  the  closing 
chapter  contains  a  critical  discussion  of  various 
remedies  for  the  evil  of  State  defalcation  and 
financial  dishonesty. 

The  term  repudiation  as  herein  employed  in- 
cludes cases  of  the  "  scaling "  of  debts  and  of 
refusal  to  pay  bonds  which  were  not  valid  obliga- 
tions of  the  States,  either  from  a  moral  or  a  legal 
standpoint.  It  may  perhaps  be  objected  that  such 
an  extension  of  the  term  is  not  justified  by  ordi- 
nary usage ;  and  that  the  compromise  of  a  debt  on 
terms  which  reduce  the  principal  and  interest,  or 
the  refusal  to  pay  bonds  which  are  claimed  to  rep- 
resent a  just  debt  but  do  7iot^  cannot  in  justice  be 
termed  repudiation.  Thougli  the  author  has  no 
desire  to  attempt  to  justify  so  broad  an  extension 
of  the  meaning  of  the  term  on  grounds  of  deriva- 
tion or  usage,  it  has  seemed  to  him  proper  to  use 
it  on  the  title-page  and  elsewhere  as  generally  and 


PREFACE.  Vll 

broadly  descriptive  of   the  class  of  financial  acts 
herein  treated. 

I  am  under  special  obligations  to  Mr.  J.  R. 
Berryman,  Librarian  of  the  State  Law  Library 
of  Wisconsin,  and  to  the  officials  of  the  State 
Historical  Library  of  Wisconsin,  and  of  the  Con- 
gressional Library  at  Washington,  for  their  kind- 
ness in  placing  freely  at  my  disposal  the  documents 
without  a  study  of  which  this  book  would  have 
been  impossible ;  also  to  Mr.  Cliarles  N.  Gregory, 
and  Mr.  David  Kinley,  of  Madison,  Wis.,  for  read- 
ing parts  of  my  manuscript  and  making  many  val- 
uable suggestions. 

William  A.  ScojJtt. 

Madison,  Wis.,  April  7, 1893. 


CONTENTS. 


PAGE 

Preface  v 

CHAPTER 

I.  The  Constitutional  and  Legal  Aspects  of 

Repudiation 3 

II.  Repudiation    in  Mississippi,    Florida,    and 

Alabama 33 

III.  Repudiation  in  North  Carolina   and  South 

Carolina 07 

IV.  Repudiation    in    Georgia,    Louisiana,    and 

Arkansas 97 

V.     Repudiation  in  Tennessee,  Minnesota,  and 

Michigan 131 

VI.     Repudiation  in  Virginia         ....  107 

VII.     Causes  of  Repudiation 199 

VIIL     Remedies  for  Repudiation    ....  241 

appendix 

I.    Sources  op  Information        ....    265 

II.  Statistical  Tables 275 

III.  Extracts   from   the  Charter  of   the  Mis- 

sissippi Union  Bank  and  the  Act  supple- 
mentauv  tmkueto         278 


X  CONTENTS. 

APPENDIX  PAGE 

IV.     Extracts   from    the    McCulloch,  Riddle- 

BERGER,     AND     DeBT-SETTLEMENT     ActS     OF 

Virginia      ....  ...     281 

V.  Extracts  from  the  Internal  Improvements 
AND  the  Debt-settlement  Acts  of  Ten- 
nessee   301 

VI.  Extracts  from  the  "  Report  of  the  Joint 
Investigating  Committee  on  Public 
Frauds,  and  Election  of  Hon.  J.  J.  Pat- 
terson TO  the  United  States  Senate, 
made  to  the  general  assembly  of  south 
Carolina  at  the  Regular  Session,  1877- 
V8" 313 

Index 319 


I. 


THE   CONSTITUTIONAL  AND   LEGAL 
ASPECTS   OF   REPUDIATION. 


fxjiriVBIlSITT] 
REPUDIATION  of  STATE  DEBTS 


CHAPTER   I. 

THE  CONSTITUTIONAL  AND   LEGAL   ASPECTS  OF 
REPUDIATION. 

The  study  of  the  chapter  of  financial  history 
which  constitutes  the  subject  of  this  book,  properly 
begins  with  an  investigation  into  the  rights  and 
privileges  of  the  States  of  the  American  Union 
relative  to  the  payment  or  non-payment  of  their 
debts.  We  naturally  ask  at  the  very  outset 
whether  repudiation  is  in  any  way  connected  with 
the  defects  in  our  constitutional  and  legal  system, 
or  whether  it  has  happened  in  spite  of  the  best 
possible  laws. 

The  Federal  Constitution  and  the  laws  of  the 
States  themselves  are  the  sources  whence  an  answer 
to  these  questions  must  be  derived.  We  will  begin 
with  the  former. 

As  originally  adopted,  the  Constitution  of  the 
United  States  contained  two  provisions  which  have 

3 


4  REPUDIATION   OF  STATE  DEBTS. 

a  bearing  on  this  subject.  One,  in  Section  10  of 
Article  I.,  prohibits  a  State  from  passing  any  law 
''impairing  the  obligation  of  contracts,"  and  the 
other,  in  Section  2,  Article  III.,  provides  that  the 
judicial  power  of  the  United  States  shall  extend 
"  to  controversies  between  two  or  more  States ; 
between  a  State  and  citizens  of  another  State; 
between  citizens  of  different  States ;  between  citi- 
zens of  the  same  State  claiming  lands  under  grants 
of  different  States ;  and  between  a  State  or  the 
citizens  thereof  and  foreign  States,  citizens,  or 
subjects." 

The  meaning  of  these  two  clauses  in  the  present 
connection  at  first  sight  seems  clear.  The  casual 
reader,  uninitiated  in  the  technicalities  of  the  law, 
would  affirm  unhesitatingly  that  the  first  one  made 
it  unlawful  for  a  State  to  repudiate  her  just  debts, 
and  that  the  second  one  provided  that  in  case  she 
did  thus  incriminate  herself,  she  could  be  brought 
to  justice  before  the  federal  courts.  However,  a 
more  careful  examination  of  the  precise  language 

ted  in  the  ''  contract  clause,"  as  the  first  one  is 
lied,  reveals  several  difficulties.  In  the  first 
place,  it  does  not  expressly  state  whether  the  con- 
tracts referred  to  are  those  of  private  individuals, 
of  States,  or  of  both.  The  natural  inference  is 
that  it  refers  to  all  contracts  by  wliomsoever  made  ; 
but  the  "  natural  inference  "  is  not  always  the  one 
which  interested  parties  draw.  The  next  query 
concerns  the  meaning  of  the  expression  the  "  obli- 


CONSTITUTIONAL  AND  LEGAL  ASPECTS.       5 

gation  of  contracts."  What  is  the  obligation  of  a 
contract?  This  being  explained,  we  ask  in  the 
third  place,  in  what  ways  can  the  obligation  of  a 
contract  be  violated  ?  These  difficulties  must  be 
removed  before  we  can  be  sure  of  the  precise  bear- 
ing of  the  clause  in  question  on  the  subject  under 
discussion. 

Regarding  the  kinds  of  contracts  referred  to,  — 
whether  State  or  individual,  or  both,  —  the  decis- 
ions of  the  Supreme  Court  leave  no  room  for 
doubt.  They  are  unanimous  in  the  declaration 
that  the  clause  includes  cases  to  which  a  State  is  a 
party.  The  following  are  examples  of  these  decis- 
ions ;  In  the  case  of  the  State  of  New  Jersey  v. 
Wilson  ^  the  statement  is  made  that  the  contract 
clause  of  the  Constitution  "  extends  to  contracts 
to  which  a  State  is  a  party  as  well  as  to  contracts 
between  individuals."  In  Providence  Bank  v.  Bil- 
lings ^  these  words  are  used :  It  has  "been  settled 
that  a  contract  entered  into  between  a  State  and 
an  individual  is  as  fully  protected  by  the  tenth  sec- 
tion of  the  first  article  of  the  Constitution  as  a 
contract  between  two  individuals."  The  decision 
in  the  case  of  Green  v.  Biddle^  states  that  "the 
Constitution  of  the  United  States  embraces  all  con- 
tracts, executed  or  executory,  whetlier  between  in- 
dividuals, or  between  a  State  and  individuals  ;  and 
that  a  State   has  no  more  power  to  impair  an  obli- 

J  7  Cranch.  IGi,  m,       2  4  Put.  514,  560.        «  a  Wheat,  1,  84. 


b  REPUDIATION   OF  STATE  DEBTS. 

gation  into  which  she  herself  has  entered  than  she 
can  the  contracts  of  individuals."  These  and  other 
decisions  ^  which  might  be  quoted  leave  no  doubt 
concerning  the  constitutional  limitation  of  the  right 
of  States  to  impair  contracts  into  which  they  have 
entered. 

The  meaning  of  the  phrase  "  obligation  of  con- 
tracts "  is  settled  by  the  following  declarations  of 
the  Supreme  Court :  "  The  obligation  of  a  contract 
consists  in  its  binding  force  on  the  party  who  makes 
it.  This  depends  on  the  laws  in  existence  when  it 
is  made ;  these  are  necessarily  referred  to  in  all 
contracts,  and  form  a  part  of  them  as  the  measure 
of  the  obligation  to  perform  them  by  the  one  party, 
and  the  right  acquired  by  the  other."  ^  Again  it 
says  :  "  The  obligation  of  a  contract,  in  the  consti- 
tutional sense,  is  the  means  provided  by  law  by 
which  it  can  be  enforced,  by  which  the  parties  can 
be  obliged  to  perform  it."  ^ 

These  decisions  clearly  indicate  that  the  value 
of  the  contract  clause  depends  upon  other  laws ; 
namely,  those  which  provide  for  the  enforcement 
of  contracts.  If  a  State  owes  a  debt,  her  obliga- 
tion seems  to  depend  entirely  upon  the  laws  in 
existence  for  the  enforcement  of  contracts  against 
States.     If  there  are  no  such  laws,  the  contract, 

»  Woodruff  V.  Trapnall,  10  How.  190,  207;  and  Wolf  v.  New 
Orleans,  103  U.  S.  358,  367. 

2  McCracken  v.  Hayward,  2  How.  608,  612. 
8  Louisiana  v.  New  Orleans,  102  U.  S.  203,  206. 


CONSTiruriONAL   AND  LEGAL  ASPECTS.       7 

though  legal,  is  really  worthless  if  the  State  sees 
fit  to  disregard  its  provisions. 

An  additional  light  is  thrown  upon  the  meaning 
and  significance  of  the  clause  in  question  by  the 
decisions  of  the  Supreme  Court,  which  define  the  va- 
rious methods  by  which  it  may  be  violated.  It  has 
been  well  established  by  the  precedents  of  this  court 
that  a  State  may  change  her  remedy  for  enforcing 
contracts,  provided  she  furnishes  in  the  new  as  effi- 
cient a  one  as  the  old.^  There  is  surely  nothing 
in  the  contract  clause  itself  which  could  prevent  this. 
It  simply  insists  that  a  change  of  remedy  shall  not 
impair  the  contract.  In  actual  practice,  however, 
it  has  been  very  difficult  to  draw  closely  the  line 
between  those  changes  of  remedy  which  impair 
contracts  and  those  which  do  not.  The  Supreme 
Court  has  recognized  this  difficulty,  and  in  the 
main  has  succeeded  in  protecting  the  right  of 
contracting  parties  to  as  efficient  a  remedy  as  ex- 
isted when  the  contract  was  made.  The  following 
quotation  will  indicate  the  practice  of  the  Supreme 
Court  on  this  point.  In  the  case  of  Bronson  v. 
Kinzie,^  Chief  Justice  Taney  said:  "  It  is  manifest 
that  the  obligation  of  a  contract,  and  the  rights  of 
a  party  under  it,  may  in  effect  be  destroyed  by 
denying  a  remedy  altogether,  or  may  be  seriously 


»  Antoni  v.  Greenhow,  107  U.  S.  7G9;  Mason  v.  Haile,  12 
Wheat.  370;  Bronson  r.  Kinzie,  1  How.  311;  Van  Hoffman  y. 
City  of  Quincy,  4  Wall.  535;  Louisiana  v.  Pilsbury,  105  U.  S.  278. 

*  See  above. 


8  REPUDIATION  OF   STATE  DEBTS. 

impaired  by  burdening  the  proceedings  with  new 
conditions  and  restrictions,  so  as  to  make  the  rem- 
edy hardly  worth  pursuing.  And  no  one,  we  pre- 
sume, would  say  that  there  is  any  substantial 
difference  between  a  retrospective  law  declaring  a 
particular  contract  or  class  of  contracts  to  be  abro- 
gated and  void,  and  one  which  took  away  all  rem- 
edy to  enforce  them,  or  encumbered  it  with  condi- 
tions that  rendered  it  useless  or  impracticable  to 
pursue  it.  One  of  the  tests  that  a  contract  has 
been  impaired  is  that  its  value  has  by  legislation 
been  diminished.  It  is  not  by  the  Constitution  to 
be  impaired  at  all.  This  is  not  a  question  of  de- 
gree or  manner  or  cause,  but  of  encroaching  in  any 
respect  on  its  obligation,  dispensing  with  any  part 
of  its  force."  ^ 

The  intent  of  the  Court  to  preserve  the  clause 
with  all  its  force  was  well  expressed  by  Justice 
Strong  in  Murray  v.  Charleston,^  when  he  said  :  "It 
is  one  of  the  highest  duties  of  this  Court  to  take 
care  that  the  prohibition  (against  impairment  of 
contracts)  shall  neither  be  invaded  nor  frittered 
away.  Complete  effect  must  be  given  to  it  in  all 
its  spirit."  In  spite  of  these  strong  statements, 
however,  in  one  important  case  in  which  a  State 
attempted  to  evade  her  obligations  by  changing  the 
remedy  for  their  enforcement,  the  Court  gave 
so  loose  and  broad  an  interpretation  to  this   right 

1  6  How.  301,327. 

2  96  U.  S.  432,  438. 


CONSTITUTIONAL  AND   LEGAL  ASPECTS.       9 

that  the  State  was  able  to  accomplish  her  pur- 
pose.* 

In  view  of  these  decisions  of  the  Supreme  Court, 
there  can  be  no  doubt  concerning  the  meaning  of 
the  clause  in  question.  It  certainly  refers  to  the 
contracts  of  States  as  well  as  to  those  of  individu- 
als, and  it  lays  upon  the  former  a  strong  moral  obli- 
gation to  pay  their  just  debts.  By  itself,  however, 
the  clause  is  nothing  more  than  a  statement  of  what 
ought  not  to  be  done.  It  provides  no  means  of 
preventing  the  repudiation  of  debts,  and  even  when 
such  means  are  nominally  provided  by  statute,  the 
decision  of  the  Supreme  Court  to  the  effect  that  a 
remedy  may  be  changed,  provided  in  so  doing  the 
contract  be  not  impaired,  may  give  rise  to  techni- 
calities under  cover  of  which  a  dishonest  State  may 
escape  her  just  obligations. 

At  this  point  it  becomes  necessary  to  inquire 
concerning  the  remedies  provided  for  the  enforce- 
ment of  the  contracts  of  delinquent  States.  The 
ability  of  the  defrauded  creditor  to  obtain  his 
rights  depends  entirely  upon  these.  As  we  have 
seen,  a  State  has  no  legal  or  moral  right  to  refuse 
to  pay  her  just  debts ;  but  the  question  of  impor- 
tance is,  what  can  be  done  in  case  she  does  refuse. 

The  clause  —  quoted  above  from  the  Constitution 
as  originally  adopted — seemed  to  imply  that  a  delin- 
quent State  could  be  brought  before  the  bar  of  the 
Supreme  Court  under  such  circumstances.     This 

1  See  Virginia  Coupon  Cases,  chap.  6,  p.  186. 


10  REPUDIATION   OF  STATE  DEBTS. 

would  certainly  have  been  a  first  step  towards  an 
efficient  remedy.  But  this  interpretation  of  the 
clause  was  questioned  even  before  the  Constitu- 
tion was  adopted.  A  controversy  on  this  very  point 
was  carried  on  in  the  States  when  this  instru- 
ment was  being  discussed  with  a  view  to  adoption. 
It  was  urged  by  many  that  it  authorized  any  citi- 
zen of  the  United  States  to  arraign  any  of  the 
States  except  his  own  at  the  bar  of  the  Supreme 
Court.  Patrick  Henry  was  a  prominent  represen- 
tative of  this  party,  and  he  said  that  the  expression 
"  controversies  between  a  State  and  citizens  of  an- 
other State"  applied  to  all  controversies,  whether 
the  State  were  plaintiff  or  defendant.  Opposed  to 
him  were  such  statesmen  as  Madison,  Marshall,  and 
Hamilton,  who  claimed  that  a  State  could  not  be 
sued  without  her  consent,  and  that  the  clause  in 
question  applied  only  to  the  States  as  plaintiffs. 
The  question  in  dispute  did  not  come  before  the 
Supreme  Court  until  1793.  In  that  year  Georgia 
was  arraigned  by  one  Chisholm,^  much  to  her  em- 
barrassment and  disgust,  and  the  Supreme  Court 
decided  that  the  case  was  proper  and  within  its 
jurisdiction  as  defined  by  Section  2,  Article  III.  of 
the  Constitution.  In  other  words,  it  supported  the 
proposition  that  an  individual  could  arraign  a  State 
before  the  bar  of  the  Supreme  Court. 

This  decisio:i  caused  much  excitement  and  dis- 
content throughout  the  country.     The  legislature 

1  2  Dallas,  419. 


CONSTITUTIONAL  AND  LEGAL  ASPECTS.     11 

of  Georgia  was  furious,  and  at  once  passed  an  act 
condemning  to  death  '*  without  benefit  of  clergy, 
any  marshal  of  the  United  States,  or  other  pei-son, 
who  should  presume  to  serve  any  process  against 
that  State  at  the  suit  of  an  individual; "  and  when 
the  State  of  Massaciiusetts  was  sued  soon  after. 
Governor  Hancock  convened  the  legislature,  and 
that  body  resolved  to  take  no  notice  of  the  suit. 
The  substantial  result  of  this  decision  was  agita- 
tion for  an  amendment  to  the  Constitution.  The 
next  session  of  Congress  took  the  matter  under 
consideration,  and  passed  by  a  large  majority  what 
is  now  known  as  the  eleventh  amendment.  The 
State  legislatures  without  exception  subsequently 
confirmed  it.  It  provides  that  "the  judicial  power 
of  the  United  States  shall  not  be  construed  to 
extend  to  any  suit  in  law  or  equity  commenced  or 
prosecuted  against  one  of  tlie  United  States  by 
the  citizens  of  another  State,  or  by  citizens  or  sub- 
jects of  any  foreign  State."  In  speaking  of  this 
amendment  in  the  case  of  Florida  v.  Georgia^  Mr. 
Justice  Campbell  said:  "Various  attempts  were 
made  in  both  bmnches  of  Congress  to  hmit  the 
operation  of  the  amendment,  but  without  effect. 
It  was  accepted,  without  the  alteration  of  a  letter, 
by  a  vote  of  twenty-three  to  two  in  the  Senate, 
and  eighty-one  to  nine  in  the  House  of  Represen- 
tatives, and  received  the  assent  of  the  State  legis- 
latures.    Georgia   ratified  the   amendment  as  an 

I  17  Howard,  520. 


12  REPUDIATION  OF  STATE  DEBTS. 

explanatory  article,  her  legislature  concurring 
therewith,  deeming  the  same  to  be  the  only  just 
and  true  construction  of  the  judicial  power  by 
which  the  rights  and  dignity  of  the  several  States 
can  be  effectively  secured.  Thus  the  supreme 
constitutional  jurisdiction  of  the  United  States, 
the  concurrent  action  of  Congress  and  the  State 
legislatures,  expressing  a  consent  almost  unani- 
mous, corrected  the  opinion  of  the  Supreme  Court, 
and  intercepted  its  final  judgments  in  these  cases 
by  declaring  that  the  Constitution  should  not  be 
so  construed  as  to  allow  them." 

This  amendment  brings  us  back  again  to  the 
original  question,  —  What  remedy  has  the  holder 
of  a  repudiated  bond  against  the  State  which  is  his 
debtor  ?  If  he  cannot  bring  suit  against  her,  what 
possible  method  remains  by  which  he  may  enforce 
his  rights  ?  Practically,  none.  The  Supreme 
Court,  however,  has  made  desperate  efforts  to 
provide  one  or  more,  and  these  must  now  be  ex- 
amined, although  their  real  utility  is  exceedingly 
small.  This  court  has  decided,  among  other  things, 
that  the  eleventh  amendment  applies  only  to  cases 
brought  by  individuals  against  States,  and  not  to 
cases  brought  by  States  against  individuals.  By 
virtue  of  this  decision,  the  federal  courts  may 
serve  as  a  shield  for  the  protection  of  the  individ- 
ual when  the  State  attempts  to  prosecute  him  un- 
justly, but  it  cannot  help  him  when  the  State  has 
already  done  him  a  wrong,  and  he  seeks  redress. 


CONSTITUTIONAL   AND  LEGAL   ASPECTS.     13 

This  point  was  elaborated  by  Chief  Justice  Mar- 
shall in  the  case  of  Cohens  v.  Virginia.^  In  this  case 
the  State  sued  Cohens  for  negotiating  United  States 
lottery  tickets  on  the  basis  of  a  Virginia  statute 
which  forbade  the  sale  of  such  tickets  in  the  State. 
Tlie  State  courts  found  him  guilty,  and  fined  him. 
The  case  was  brought  before  the  Supreme  Court 
on  a  writ  of  error,  and  in  arguing  the  writ  it  was 
claimed  that  cases  between  a  State  and  one  of  her 
own  citizens  were  never  intended  to  be  cognizable 
in  the  federal  courts.  In  reply  to  this,  Chief  Jus- 
tice Marshall  said :  "  This  is  very  true,  so  far  as 
jurisdiction  depends  on  the  character  of  the  par- 
ties ;  and  the  argument  would  have  great  force 
if  urged  to  prove  that  this  court  could  not  es- 
tablish the  demand  of  a  citizen  upon  the  State;  but 
it  is  not  entitled  to  the  same  force  when  urged  to 
prove  that  this  court  cannot  inquire  whether  the 
Constitution  or  laws  of  the  United  States  protect 
a  citizen  from  prosecution  instituted  against  him 
by  a  State."  To  establish  the  same  point,  the  case 
is  supposed  of  an  export  duty  being  levied  by  a 
State.  "  If  a  citizen  should  pay  such  a  tax,"  said 
the  Chief  Justice,  "  and  then  sue  the  State  for  the 
recovery  of  his  money,  the  federal  courts  could 
not  protect  him.  But  if  he  refused  to  pay  the 
duty,  and  the  State  attempted  to  levy  upon  his 
property  or  entered  upon  judicial  proceedings 
against  him,  the  courts  of  the  United  States  could 

>  (>  Wheat.  391. 


14  EEPUDIATION  OF  STATE  DEBTS. 

restrain  the  State  and  shield  the  man  from  harm." 
In  summing  up  his  argument,  Chief  Justice  Mar- 
shall said:  "  The  amendment,  therefore,  extends  to 
suits  commenced  or  prosecuted  by  individuals,  but 
not  to  those  brought  by  States."  Justice  Mat- 
thews in  the  case  of  Poindexter  v.  Greenhow  ^  con- 
curred in  this  opinion  in  the  following  passage 
quoted  from  his  decision :  "  This  immunity  from 
suit  secured  to  the  States  is  undoubtedly  a  part  of 
the  Constitution  of  equal  authority  with  every 
other,  but  no  greater,  and  to  be  construed  and 
applied  in  harmony  with  all  the  provisions  of  that 
instrument.  That  immunity,  however,  does  not 
exempt  the  State  from  the  operation  of  the  consti- 
tutional provision  that  no  State  shall  pass  any  law 
impairing  the  obligation  of  contracts ;  for  it  has 
long  been  settled  that  contracts  between  a  State 
and  an  individual  are  as  fully  protected  by  the 
Constitution  as  contracts  between  individuals.  It 
is  true  that  no  remedy  for  a  breach  of  its  contract 
by  a  State  by  way  of  damages  as  compensation,  or 
by  means  of  process  to  compel  its  performance,  is 
open,  under  the  Constitution,  in  the  courts  of  the 
United  States  by  a  direct  suit  against  the  State 
itself  on  the  part  of  the  injured  party,  being  a 
citizen  of  another  State,  or  a  citizen  or  subject  of 
a  foreign  State.  But  it  is  equally  true  that  when- 
ever in  a  controversy  between  parties  to  a  suit,  of 
which  these  courts  have  jurisdiction,  the  question 

1  114  U.  S.  286. 


CONSTITUTIONAL  AND  LEGAL  ASPECTS.    15 

arises  upon  the  validity  of  a  law  by  a  State  im- 
pairing the  obligation  of  its  contract,  the  juris- 
diction is  not  thereby  ousted,  but  must  be  exercised 
with  whatever  legal  consequences  to  the  rights  of 
the  litigants  may  be  the  result  of  the  determina- 
tion." 1 

In  view  of  these  decisions  it  cannot  be  doubted 
that  States  can  be  brought  before  the  federal  courts 
in  suits  which  they  themselves  commence,  but  it 
is  doubtful  whether  this  fact  is  capable  of  bring- 
ing much  consolation  to  holders  of  repudiated 
bonds.  Only  under  exceptional  circumstances  can 
they  find  relief  in  this  fact,  for  it  is  seldom  that 
the  repudiation  of  debts  by  a  State  compels  her  to 
bring  suit  against  persons.  Such  a  case,^  however, 
occurred  in  Virginia.  The  State  had  made  the 
coupons  of  her  bonds  receivable  for  taxes  and  other 
dues;  and,  after  her  repudiation,  she  refused  to 
receive  them,  and  levied  upon  tlie  property  of  those 
who  refused  to  pay  after  making  a  tender  of  their 
coupons.  This  was  a  case  in  point ;  and  the  Su- 
preme Court  declared  that  a  tender  of  the  coupons 
released  the  citizen  from  further  obligation,  and 
that  the  law  forbidding  the  receipt  of  coupons  for 
taxes  was  unconstitutional. 

1  See  besides,  in  confirmation  of  this  point,  Fletcher  v.  Peck,  6 
Cranch.  87;  New  Jersey  v.  Wilson,  7  Cranch.  K'A;  Green  v.  Bid- 
die,  8  Wheat.  1,  84;  Providence  Bank  v.  Billings,  4  Pet.  514; 
Woodruff  V.  Trapnall,  10  How.  UK);  Wolff  v.  New  Orleans,  103 
U.S.  358;  Jefferson  Branch  Bank  v.  Skelly,  1  Black,  436. 

2  Poindexter  v.  Greeuhow,  114  U.  S.  270. 


16  REPUDIATION  OF  STATE  DEBTS. 

A  second  source  of  relief  to  individuals  under 
certain  circumstances  is  suggested  in  those  passages 
of  the  decisions  quoted  which  make  it  possible  for 
the  Supreme  Court  to  decide  upon  the  constitu- 
tionality of  State  laws  which  may  be  involved  in 
suits  which  come  under  its  jurisdiction.  If  a  State 
law  is  once  declared  unconstitutional  by  the  Su- 
preme Court,  it  no  longer  possesses  binding  force, 
and  cannot  be  referred  to  by  courts  in  deciding 
cases,  or  be  pleaded  as  protection  by  State  officers 
whose  acts  may  be  called  in  question  by  injured 
persons.  In  the  case  of  Louisiana  v.  Pilsbury,^  it 
was  held  that  the  legislation  of  a  State  impairing  the 
obligation  of  contracts  made  under  her  authority 
is  null  and  void  ;  and  the  courts,  in  enforcing  the 
contracts,  will  pursue  the  same  course  and  apply 
the  same  remedies  as  though  such  invalid  legisla- 
tion had  never  existed.  This  applies  to  laws  em- 
bodied in  State  constitutions  as  well  as  to  statute 
laws,  for  the  Supreme  Court  has  repeatedly  held 
that  the  constitution  of  a  State  is  a  law  within 
the  meaning  of  the  prohibition  that  no  State  shall 
pass  a  law  impairing  the  obligation  of  contracts.^ 
This  provision,  which  may  be  regarded  as  a  part 
of  our  constitutional  law,  has  an  important  bearing 

1  105  U.  S.  278. 

2  See  Miss.  &  Mo.  R.R.  Co.  v.  McClure,  10  Wall.  511;  Mechan- 
ics &  Traders' Bank  v.  Thomas,  18  How.  384;  White  u.  Hart,  13 
Wall.  G4G;  Detmas  t'.  Merchants'  Mut.  Ins,  Co.,  14  Wall.  CGI; 
Gunn  V.  Barry,  15  Wall.  610;  Davis  v.  Gray,  IG  Wall.  203;  Fisk 
V.  Police  Jury,  IIG  U.  S.  131. 


CONSTITUTIONAL   AND  LEGAL  ASPECTS.     17 

on  the  subject  under  discussion  when  considered 
in  connection  with  the  right  of  individuals  to  sue 
State  officers  in  cases  in  which  they  could  not  sue 
the  States  directly.  This  right  inheres  in  precisely 
those  cases  in  which  a  State  officer  attempts  to  en- 
force an  unconstitutional  law.  Such  a  law  does 
not  exist,  according  to  the  interpretation  put  upon 
the  Constitution  by  the  Supreme  Court;  and  an 
officer  who  attempts  to  enforce  it  makes  himself 
liable  to  the  charge  of  misdemeanor,  and  may  be 
prosecuted  and  punished. 

It  has  been  claimed  ^  that  in  all  cases,  in  which 
the  eleventh  amendment  prohibits  a  State  from 
being  made  a  party  defendant  to  a  suit,  suit  may  be 
brought  against  the  officers  intrusted  with  the  ex- 
ecution of  the  law;  but  it  is  hardly  possible  to  sup- 
port this  claim  with  clear  evidence  drawn  from  the 
decisions  of  the  Supreme  Court.  The  cases  usu- 
ally referred  to  in  support  of  this  view  do  not 
authorize  so  broad  a  generalization.  In  the  lead- 
ing one,  that  of  Osborn  v.  United  States  Bank 
(9  Wheat.  738),  suit  was  brought  to  restrain  the 
auditor  of  the  State  of  Ohio  from  levying  a  tax 
upon  the  United  States  Bank  in  pui*suance  of  a 
statute  of  the  State  ordering  such  a  tax  to  be  col- 
lected. It  was  claimed  by  the  defendants  that 
the  case  could  not  be  entertained  by  the  Supreme 
Court  on  account  of  the  prohibition  contained  in 

1  D.  H.  Chamberlain  on  "The  Constitutionality  of  Repudia- 
tion," in  North  American  Review  for  March,1884. 


18  REPUDIATION   OF  STATE  DEBTS. 

the  eleventh  amendment.  In  answer  to  this  the 
Court  said :  "  The  objection  is  that,  as  the  real 
party  cannot  be  brought  before  the  Court,  a  suit 
cannot  be  sustained  against  the  agents  of  tliat 
party ;  and  cases  have  been  cited  to  show  that  a 
Court  of  Chancery  will  not  make  a  decree  unless 
all  those  who  are  substantially  interested  be  made 
parties  to  the  suit.  This  is  certainly  true  where 
it  is  in  the  power  of  the  plaintiff  to  make  them 
parties;  but  if  the  person  who  is  the  real  principal, 
the  person  who  is  the  true  source  of  the  mischief, 
by  whose  power  and  for  whose  advantage  it  is 
done,  be  himself  above  the  law,  be  exempt  from 
all  judicial  process,  it  would  be  subversive  of  the 
best  established  principles  to  say  that  the  laws 
could  not  afford  the  same  remedies  against  the 
agent  employed  in  doing  the  wrong  which  they 
would  afford  against  him  could  his  principal  be 
joined  in  the  suit. 

In  the  case  of  Davis  v.  Gray  (16  Wall.  203)  this 
decision  was  confirmed  in  the  following  words:  — 

"  (1)  A  circuit  court  of  the  United  States  in  a 
proper  case  in  equity  may  enjoin  a  State  officer  from 
executing  a  State  law  in  conflict  with  the  Consti- 
tution or  a  statute  of  the  United  States,  when  such 
execution  will  violate  the  rights  of  the  complainant. 

"(2)  Where  the  State  is  concerned,  the  State 
should  be  made  a  party  if  it  could  be  done ;  that 
it  cannot  be  done  is  a  sufficient  reason  for  the  omis- 
sion to  do  it,  and  the  court  may  proceed  to  decree 


CONSTITUTIONAL  AND  LEGAL  ASPECTS.     19 

against  the  officers  of  the  State  in  all  respects  as  if 
the  State  were  a  party  to  the  record." 

A  second  confirmation  of  this  opinion  was  made 
in  the  case  of  Board  of  Liquidation  et  al.  v, 
McComb  (92  U.  S.  531)  in  the  following  words : 
"  On  this  branch  of  the  subject  the  numerous  and 
well-considered  cases  heretofore  decided  by  tliis 
court  leave  little  to  be  said.  The  objections  to 
proceeding  against  State  officers  by  mandamus  or 
injunction  are :  first,  that  it  is,  in  effect,  proceed- 
ing against  the  State  itself;  and,  secondly,  that  it 
interferes  with  the  official  discretion  vested  in  the 
officers.  It  is  conceded  that  neither  of  these  tilings 
can  be  done.  A  State,  without  its  consent,  cannot 
be  sued  by  an  individual ;  and  a  court  cannot  sub- 
stitute its  own  discretion  for  that  of  executive 
officers  in  matters  belonging  to  the  proper  jurisdic- 
tion of  the  latter.  But  it  has  been  well  settled 
that  when  a  plain  official  duty,  requiring  no  exer- 
cise of  discretion,  is  to  be  performed,  and  per- 
formance is  refused,  any  person  who  will  sustain 
personal  injury  by  such  refusal  may  have  a  manda- 
mus to  compel  its  performance  ;  and  when  such 
duty  is  threatened  to  be  violated  by  some  positive 
official  act,  any  person  who  will  sustain  personal 
injury  thereby,  for  which  adequate  compensation 
cannot  be  had  at  law,  may  have  an  injunction  to 
prevent  it.  In  sucli  cases  the  writs  of  mandamus 
and  injunction  are  somewhat  correlative  to  each 
other.     In   either   case,   if   the   officer   plead    the 


20  BEPUDIATION   OF  STATE  DEBTS. 

authority  of  an  unconstitutional  law  for  the  non- 
performance or  violation  of  his  duty,  it  will  not 
prevent  the  issuing  of  the  writ.  An  unconstitu- 
tional law  will  be  treated  by  the  courts  as  null  and 
void." 

That  the  Supreme  Court  did  not  intend  in  these 
cases  to  lay  down  the  principal  that  State  officers 
may  be  made  parties  defendant  to  a  suit  in  all  cases 
in  which  the  State  could  not  be  sued  is  evident 
from  the  decision  in  the  case  of  Louisiana  v.  Jumel 
(107  U.  S.  711),  in  which  the  above-mentioned 
cases  are  reviewed,  and  the  following  statement 
subversive  of  the  principle  mentioned  is  made  : 
"  The  remedy  sought,  in  order  to  be  complete, 
would  require  the  court  to  assume  all  the  execu- 
tive authority  of  the  State,  so  far  as  it  related  to 
the  enforcement  of  this  law,  and  to  supervise  the 
conduct  of  all  persons  charged  with  any  official 
duty  in  respect  to  the  levy,  collection,  and  disburse- 
ment of  the  tax  in  question  until  the  bonds,  prin- 
cipal and  interest,  were  paid  in  full,  and  that,  too, 
in  a  proceeding  in  which  the  State,  as  a  State,  was 
not  and  could  not  be  made  a  party.  It  needs  no 
argument  to  show  that  the  political  power  cannot 
be  thus  ousted  of  its  jurisdiction,  and  the  judiciary 
set  in  its  place.  When  a  State  submits  itself, 
without  reservation,  to  the  jurisdiction  of  the 
court  in  a  particular  case,  that  jurisdiction  may  be 
used  to  give  full  effect  to  what  the  State  has,  by  its 
active  submission,  allowed  to  be  done ;  and  if  the 


CONSTITUTIONAL  AND  LEGAL  ASPECTS.    21 

law  permits  coercion  of  the  public  officers  to  en- 
force any  judgment  that  may  be  rendered,  then 
such  coercion  may  be  employed  for  that  purpose. 
But  this  is  very  far  from  authorizing  the  court, 
when  a  State  cannot  be  sued,  to  set  up  its  juris- 
diction over  the  officeis  in  charge  of  the  public 
moneys,  so  as  to  control  them,  as  figainst  the  polit- 
ical power  in  their  administration  of  the  finances 
of  the  State." 

It  is  certainly  impossible  to  draw  any  sharp  line 
of  distinction  between  SUite  officei*s  executing  the 
laws  and  the  State  hei*self.  The  officers  represent 
the  State,  and  constitute  the  SUite  for  all  practical 
purposes.  But  when  a  given  enactment  is  uncon- 
stitutional, it  is  no  more  a  law  than  if  it  had  never 
been  passed,  and  officers  must  regard  it  as  null 
and  void,  any  attempt  on  tlieir  part  to  enforce  it 
falling  in  the  same  category  as  any  other  official 
act  not  warranted  by  law.  This  conclusion  is  the 
only  one  which  is  capable  of  harmonizing  the 
Supreme  Court  decisions,  and  which  is  supported 
by  reason.  The  eleventh  amendment  would  be  a 
dead  letter  if  State  officials  could  be  sued  in  the 
federal  courts  in  all  cases  in  which  the  State  herself, 
would  be  the  natural  defendant;  but  no  legal  prin- 
ciple is  violated  if  an  official  be  sued  for  acts 
which  the  laws  of  his  State  or  of  the  United  States 
did  not  warrant  him  in  j^erformiiig. 

From  this  decision  it  appears,  then,  that  the  bar- 
riers of  the  eleventh  amendment  have  been  pierced 


22  REPUDIATION  OF  STATE  DEBTS. 

at  only  two  points :  It  does  not  prevent  the  fed- 
eral courts  from  entertaining  cases  brought  by 
States  against  individuals,  and  it  does  not  prevent 
these  courts  from  pronouncing  an  opinion  concern- 
ing the  constitutionality  of  State  laws  which  may 
be  involved  in  cases  which  come  under  their  juris- 
diction, and  from  thus  restraining  State  officers 
from  executing  unconstitutional  laws. 

We  are  now  prepared  to  answer  the  question 
suggested  at  the  beginning  of  this  chapter  ,*  namely, 
What  protection  is  afforded  the  holder  of  a  repu- 
diated bond  by  the  federal  constitution  ?  We  have 
seen  that  the  contract  clause  —  which  is  plainly 
violated  when  a  State  passes  a  law  repudiating  a 
bond  —  is  no  protection  unless  an  adequate  remedy 
for  its  enforcement  be  provided.  We  have  seen 
also  that  Section  2,  Article  III.,  of  the  Constitution 
was  designed  to  afford  such  a  remedy  in  its  provis- 
ion that  States  could  be  sued  by  individuals  in  the 
federal  courts,  but  that  this  remedy  was  practically 
taken  away  by  the  eleventh  amendment.  Suits  be- 
tween two  States  may  still  be  brought  before  the 
federal  courts,  and  both  New  York  ^  and  New  Hamp- 
shire attempted  without  avail  to  make  use  of  these 
rights  for  the  protection  of  bondholders  who  had 
been  defrauded  by  State  repudiation.  When 
Louisiana  passed  her  repudiation  acts,  both  these 
States  obtained  possession  of  certain  of  the  dishon- 
ored  bonds    of  their   citizens,    and    brought   suit 

1  108  U.  S.  76. 


CONSTITUTIONAL   AND  LEGAL  ASPECTS.     23 

against  Louisiana  in  the  Supreme  Court.  It  was 
decided,  however,  that  this  was  simply  an  attempt 
to  evade  the  eleventh  amendment,  and  consequently 
not  permissible.  There  is,  then,  no  remedy  pro- 
vided by  the  United  States  for  the  enforcement  of 
the  "  contract  clause  "  of  which  the  holder  of  a 
repudiated  bond  can  avail  himself.  Only  in  case 
the  State  makes  her  coupons  receivable  for  taxes, 
or  in  some  other  exceptional  way  leaves  the  door 
open  to  individuals  to  enter  suit  against  her,  can 
she  be  prevented  by  the  United  States  from  repu- 
diating all  her  debts,  and  inflicting  upon  individ- 
uals and  the  community  at  large  all  the  evils  which 
repudiation  involves. 

There  still  remain  for  us  to  consider  in  this 
chapter  the  remedies  afforded  by  the  States  them- 
selves in  case  of  an  attempted  repudiation.  It  is, 
of  couree,  entirely  possible  for  a  State  to  submit 
herself  to  those  judicial  processes  to  which  persons 
are  submitted.  Just  as  a  person  may  be  brought  be- 
fore a  court  and  fined,  if  he  refuses  to  pay  his  honest 
debts,  so  a  State  may  by  law  provide  that  she  shall 
be  sued  by  creditors  who  have  grievances,  and 
direct  her  officers  to  pay  the  judgment  out  of  her 
treasury.  The  above-mentioned  evil  effects  of  the 
eleventh  amendment  might  be  for  the  most  part 
avoided,  if  all  the  States  of  our  Union  would  pro- 
vide in  this  manner  for  the  settlement  of  claims 
against  themselves.  Most  bondholders  would  con- 
sider themselves  safe,  if  they  could  present  their 


24  REPUDIATION  OF  STATE  DEBTS. 

bonds  to  a  court  of  justice  for  adjudication  regard- 
ing their  validity,  and  if  they  could  be  assured  that 
the  courts  were  possessed  of  powers  adequate  to 
the  enforcement  of  the  collection  of  a  tax  for  the 
payment  of  the  bonds  in  case  they  were  adjudged 
to  be  valid.  Our  States,  however,  have  not  as  a 
rule  seen  fit  to  confer  such  powers  upon  their 
courts.  Most  of  them  have  considered  it  beneath 
the  dignity  of  a  sovereign  to  stand  as  defendant  in 
a  suit  at  law.  It  has  been  taken  for  granted  that  a 
State  will  always  do  right,  and  that  it  is  tantamount 
to  admitting  that  the  sovereign  people  are  not 
always  to  be  trusted,  to  provide  for  their  being 
forced  by  a  court  of  justice  to  do  what  they  would 
not  do  voluntarily.  Such  an  admission,  it  has  also 
been  urged,  could  not  but  injure  the  national 
credit. 

From  the  standpoint  of  legislation  on  this  sub- 
ject, our  States  fall  into  three  classes  :  those  which 
have  entirely  ignored  the  matter  ;  those  whose  con- 
stitutions provide  that  the  legislature  may  deter- 
mine in  what  manner  suit  may  be  brought  against 
the  State ;  and  those  which  expressly  prohibit  the 
State  being  made  a  defendant  in  a  suit  at  law. 

In  constitutions  of  the  first  class  are  usually 
found  simply  restatements  of  the  prohibition  con- 
tained in  the  federal  constitution  against  the  im- 
pairment of  contracts.  This,  of  course,  amounts 
to  nothing  as  a  protection  to  persons  seeking  their 
rights.    To  the  second  class,  thirteen  of  our  States 


CONSTITUTIONAL  AND  LEGAL  ASPECTS.     25 

belong.^  Of  these,  however,  only  five — Indiana, 
Mississippi,  Wisconsin,  Nebraska,  and  Nevada  — 
have  anything  approaching  adequate  legislation 
on  the  subject.  The  statutes  of  Indiana  provide 
that  suit  against  the  State  may  be  brought  in  the 
Superior  Court  of  Marion  County,  and  appealed  by 
eitfier  party  to  the  Supreme  Court.  The  value  of 
this  privilege  is,  however,  considerably  diminished 
by  the  provision  that  "whenever by  final  decree  or 
judgment  of  said  superior  court  of  Marion  County, 
Ind.,  or  the  Supreme  Court,  a  sum  of  money  is 
adjudged  to  be  due  any  person  from  the  State  of 
Indiana,  no  execution  shall  issue  thereon,  but  said 
judgment  shall  draw  interest  at  the  rate  of  six 
per  cent  per  annum  from  the  date  of  the  adjourn- 
ment of  the  next  ensuing  session  of  the  General 
Assembly  until  an  appropriation  shall  have  been 
made  by  law  for  the  payment  of  the  same,  and 
said  judgment  paid."  ^  The  statute  of  Mississippi 
resembles  this,  particularly  in  the  provision  that 
no  judgment  shall  be  paid  until  an  appropriation 
shall  have  been  made  by  the  legislature,^  and  the 

1  See  Pennsylvania  Constitution,  Art.  I.  Sec.  11;  Indiana 
C,  IV.  24;  Wisconsin  C,  IV.  27;  Nebraska  C,  VI.  22;  Dela- 
ware C,  I.  9;  Kentucky  C,  VIII.  6;  Tennessee  C,  I.  17;  Cali- 
fornia C,  XX.  0;  Oregon  C,  IV.  24;  Nevada  C,  IV.  22;  South 
Carolina  C,  XIV.  4;  Mississippi  C,  IV.  21;  Florida  C,  IV.  19. 

2  Revised  Statutes  of  Indiana  (1892),  vol.  iii.  pp.  10.3,  104.  One 
section  expressly  exempts  from  the  operation  of  the  statute  the 
stock  issued  in  aid  of  the  Wabash  and  Erie  Canal. 

»  See  Annotated  Code  of  Mississippi,  1892  (Thompson,  Dil- 
lard,  &  Campbell),  chap.  131. 


26  REPUDIATION  OF  STATE  DEBTS. 

experience  of  that  State  has  demonstrated  that  to 
leave  the  matter  of  paying  a  judgment  to  the  dis- 
cretion of  the  legislature  is  fatal  to  the  interests 
of  defrauded  bondholders.^ 

The  legislature  of  Wisconsin  has  made  a  similar 
provision  for  the  bringing  of  suits  against  that 
State.  Here,  however,  tlie  proceedings  come  in 
the  first  instance  before  the  Supreme  Court,  ques- 
tions of  fact,  however,  being  determined  by  some 
circuit  court.  This  State,  however,  makes  the 
decision  of  her  Supreme  Court  final  and  binding 
by  the  following  provision :  "  Whenever  a  final 
judgment  against  the  State  shall  be  obtained  in 
the  Supreme  Court,  it  shall  be  the  duty  of  the 
clerk  of  the  said  court  to  make  and  furnish  to 
the  Secretary  of  State  a  transcript  of  such  judg- 
ment, and  the  Secretary  of  State  shall,  thereupon, 
audit,  in  favor  of  the  person  so  obtaining  such 
judgment,  the  amount  of  damages  and  costs  there- 
in awarded,  and  shall  draw  his  warrant  on  the 
treasury  therefor.  There  is  hereby  appropriated 
from  the  State  treasury  out  of  any  money  there- 
in, not  otherwise  appropriated,  a  sum  sufficient 
to  carry  into  effect  the  provision  of  this  act  " 
(Statutes  of  Wisconsin,  1871,  vol.  ii.  pp.  1789- 
1791).  This  statute  would  be  all  that  could  be 
asked  in  behalf  of  State  creditors,  were  it  not  for 
the  following  clause  appended  to  a  section  of  the 
statute  which   prescribes    the   modus   operandi  of 

1  See  chap.  ii. 


CONSTITUTIONAL   AND  LEGAL  ASPECTS.     27 

bringing  suit  against  the  State :  "  Provided  ahvays^ 
that  no  judgment  rendered  in  any  such  action  shall 
be  evidence  of  any  public  debt  against  the  State, 
nor  shall  the  State  be  held  liable  to  pay  any  such 
judgment,  or  any  part  thereof,  or  for  any  costs 
which  may  accrue  in  the  prosecution  thereof." 
Provisions  in  all  essentials  like  those  of  Wiscon- 
sin (the  last  one  quoted  being  accepted)  have 
been  made  by  the  legislature  of  Nebraska.^ 

The  legislature  of  Nevada  has  complied  with  the 
provision  of  her  constitution  only  to  the  extent  of 
allowing  the  State  to  be  sued  on  "a  claim  .  .  . 
for  services  or  advances  authorized  by  law,  and  for 
which  an  appropriation  has  been  made,  but  of 
which  the  amount  has  not  been  fixed  by  law." 
If  the  Board  of  Examinera,  or  the  State  Comp- 
troller, refuse  to  allow  a  portion  of  such  claims, 
suit  can  be  brought  against  the  State  to  recover 
the  portion  thus  disallowed.^ 

The  legislatures  of  other  States  whose  constitu- 
tions express  a  willingness  to  allow  the  State  to  be 
sued,  with  one  exception,  have  let  the  matter  go 
by  default;  and  silence  of  the  statutes  on  this 
point  has  been  interpreted  to  mean  that  the  State 
cannot  be  made  defendant  in  a  suit  at  law.^ 

The  exception  referred  to  is  that  of  the  legisla- 

1  See  Consolidated  Statutes  of  Nebraska  (1891),  Sec.  4307- 
4323. 

2  See  General  Statutes  of  Nevada,  1885  (Bailey  &  Ham- 
mond), Sec.  3895. 

«  See  People  v.  Tahnage,  G  Cal.  258. 


28  REPUDIATION  OF  STATE  DEBTS. 

ture  of  Tennessee,  which,  instead  of  providing 
how  suits  can  be  brought  against  the  State,  has 
declared  that  no  such  suits  shall  be  allowed  under 
any  circumstances.  Section  3507  of  the  code  of 
1884  (Millikin  &  Vertrees)  reads  as  follows :  "  No 
court  in  the  State  of  Tennessee  has,  nor  shall 
hereafter  have,  any  power,  jurisdiction,  or  authority 
to  entertain  any  suit  against  the  State,  or  against 
any  officer  of  the  State,  acting  by  authority  of  the 
State,  with  a  view  to  reach  the  State,  its  treasury, 
funds  or  property  ;  and  all  such  suits  now  pending, 
or  hereafter  brought,  shall  be  dismissed  as  to  the 
State  or  such  officers  on  motion,  plea,  or  demurrer 
of  the  law  officer  of  the  State  or  counsel  employed 
by  the  State." 

Arkansas,  Alabama,  Illinois,  Virginia,  and  West 
Virginia  belong  to  the  third  class  above  mentioned. 
They  do  not  allow  themselves  to  be  sued.  The 
constitution  of  Arkansas,  Sec.  20,  Art.  V.,  reads  as 
follows :  "  The  State  of  Arkansas  shall  never  be 
made  defendant  in  any  of  her  courts."  That  of 
West  Virginia,  Art.  VI.  Sec.  35,  says  :  '*  The  State 
of  West  Virginia  shall  never  be  made  defendant 
in  any  court  of  law  or  equity."  The  provisions  in 
the  constitutions  of  the  other  States  are  in  every 
essential  respect  similar  to  these. 

North  Carolina  and  Michigan  are  exceptional 
cases  in  that  they  do  not  properly  belong  to  either 
of  the  three  classes  mentioned.  Tlie  constitution 
of  the  former  State,  Art.  IV.  Sec.  11,^  provides  for 

1  Constitution  of  18G8. 


CONSTITUTIONAL  AND  LEGAL  ASPECTS.    29 

'the  settlement  of  claims  by  the  Supreme  Court, 
but  adds  that  "  its  decisions  shall  be  merely  recom- 
mendatory ;  no  process  in  the  nature  of  execution 
shall  issue  thereon ;  they  shall  be  reported  to  the 
next  session  of  the  General  Assembly  for  its  ac- 
tion." In  the  constitution  of  Michigan  there  is  a 
provision  that  the  Secretary  of  State,  Treasurer,  and 
Commissioner  of  Lands  shall  constitute  a  board  for 
the  adjustment  of  claims  against  the  State.^  Such 
a  provision,  however,  is  of  little  value  unless  en- 
forced by  stringent  legislation  giving  tliis  board 
power  not  only  to  adjust  the  claims,  but  also  to 
draw  upon  the  treasury  for  their  payment.  It 
may  also  be  doubted  whether  this  provision  would 
cover  the  case  of  the  holder  of  a  repudiated 
bond. 

Other  facts  or  arguments  are  not  necessary  to 
our  present  purpose.  A  brief  examination  of  the 
constitutional  or  statute  law  of  our  States  is  ade- 
quate to  show  that,  with  possibly  four  or  five  ex- 
ceptions, they  have  not  provided  for  the  protection 
of  defrauded  creditors.  Abundance  of  facts  given 
in  the  following  chapters  place  this  conclusion 
beyond  all  controversy. 

In  conclusion,  then,  we  may  summarize  that  por- 
tion of  our  public  law  which  relates  to  the  repudi- 
ation of  debts  as  follows  :  — 

1.  States  are  forbidden  by  the  Constitution  of 
the  United  States,  and  in  many  cases  by  their  own 

1  Art.  viii.  Sec.  4. 


30  KEPUDIATION  OF  STATE  DEBTS. 

constitutions,  to  violate  contracts  into  which  they 
have  entered. 

2.  The  United  States  Constitution  as  originally 
adopted  permitted  individuals  to  bring  suit  in  the 
federal  courts  against  States  guilty  of  having  vio- 
lated their  contracts,  and  in  so  far  afforded  them  a 
remedy;  but  the  eleventh  amendment  deprived 
persons  of  this  privilege,  and  virtually  took  away 
this  remedy.  At  the  present  time  the  federal 
government  can  afford  relief  to  a  defrauded  State 
creditor  only  indirectly  and  under  special  circum- 
stances. The  Supreme  Court  still  claims  the  right 
to  entertain  suits  brought  by  States  against  per- 
sons, and  it  still  persists  in  the  right  to  decide 
concerning  the  constitutionality  of  State  laws 
which  are  involved  in  cases  coming  within  its  ju- 
risdiction. It  can,  therefore,  protect  a  person 
against  whom  a  State  is  attempting  to  enforce  an 
unconstitutional  law,  and  it  can  protect  a  person 
in  his  right  to  bring  suit  against  State  officials  who 
attempt  to  enforce  unconstitutional  laws. 

3.  Our  States,  with  four  or  five  exceptions, 
have  failed  to  provide  remedies  against  themselves 
in  cases  of  repudiation. 

4.  The  general  conclusion  is  that  our  States  are 
practically  free  to  pay  their  debts  or  to  repudiate 
them  as  they  see  fit. 

The  following  chapters  will  indicate  the  use 
which  they  have  made  of  this  freedom. 


II. 


REPUDIATION    IN    MISSISSIPPI, 
FLORIDA.   AND  ALABAMA. 


CHAPTER   II. 

REPUDIATION  IN  MISSISSIPPI,   FLORIDA,   AND 
ALABAMA. 

Mississippi, 

Of  the  States  considered  in  this  sketch,  Missis- 
sippi was  the  first  to  practise  repudiation.  As 
early  as  the  forties  she  refused  to  pay  one  class  of 
bonds  aggregating  in  face  value  #5,000,000,  and  in 
the  fifties  another  class  aggregating  $2,000,000 
met  a  like  fate. 

The  first  mentioned  bonds  were  issued  in  June, 
1838,  in  payment  of  five  thousand  shares  of  stock 
in  the  Union  Bank  of  Mississippi.  This  bank  was 
chartered  on  the  5th  of  February,  1838,  under  a 
law  which  pledged  the  State  to  the  issue  of  bonds 
to  the  amount  of  #15,500,000,  for  the  purpose  of 
supplying  the  working  capital.  Several  conditions 
were  attached  to  this  issue,  among  which  the  most 
important  are  the  following:  (1)  that  subscrip- 
tion books  for  the  whole  amount  (#15,500,000) 
should  be  opened ;  (2)  that  only  real  estate  own- 
ers in  the  State  of  Mississippi  should  be  permitted 
to  subscribe  ;  (3)  that  said  subscribers  should  give 
firet-class  mortofaore  securities,  which  were  to  be 
turned  over  by  the  bank  officials  to  the  State  as 

33 


84  REPUDIATION  OF  STATE  DEBTS 

security  for  the  bonds ;  (4)  that  the  bonds  should 
not  be  sold  below  par.^  The  validity  of  the  char- 
ter which  prescribed  these  conditions  rested  upon 
the  compliance  of  the  legislature  with  the  follow- 
ing provisions  of  the  constitution  designed  to  pre- 
vent hasty  and  unpopular  legislation  :  "  No  law 
shall  ever  be  passed  to  raise  a  loan  of  money  on 
the  credit  of  the  State,  or  to  pledge  the  faith  of  the 
State  for  the  payment  or  redemption  of  any  loan 
or  debt,  unless  such  law  be  proposed  in  the  Senate 
or  House  of  Representatives,  and  be  agreed  to  by 
a  majority  of  the  members  of  each  house,  and  en- 
tered on  their  journals  with  the  yeas  and  nays 
taken  thereon,  and  be  referred  to  the  next  succeed- 
ing legislature,  and  published  three  months  previ- 
ous to  the  next  regular  election  in  three  newspapers 
of  the  State  ;  and  unless  a  majority  of  each  branch 
of  the  legislature  so  elected,  after  such  election, 
shall  agree  to  and  pass  such  law."  ^ 

Ten  days  after  this  enactment  a  bill  was  passed 
entitled  "  An  act  supplementary  to  an  act  to  in- 
corporate the  subscribers  to  the  Mississippi  Union 
Bank,"  which  contained  the  following  provision: 
"  As  soon  as  the  books  of  subscription  for  stock  in 
the  said  Mississippi  Union  Bank  are  opened,  the 
Governor  of  this  State  is  hereby  authorized  and 
required  to  subscribe  for,  in  behalf  of  this  State, 
fifty  thousand  shares  of  the  stock  of  the  original 

1  For  tlie  charter,  see  Laws  of  Mississippi  for  1838,  p.  9. 

2  See  Art.  VII.  Sec.  9  of  the  constitution  of  1838. 


IN  MISSISSIPPI,  FLORIDA,  AND  ALABAMA.    35 

capital  of  the  said  bank ;  the  same  to  be  paid  for 
out  of  the  proceeds  of  the  State  bonds,  to  be  exe- 
cuted to  the  said  bank  as  already  provided  for  in 
the  said  charter."  ^  Under  this  supplemental  act, 
bonds  to  the  amount  of  ^5,000,000  were  executed 
to  the  bank  in  purchase  of  stock.  They  were  sold 
to  Mr.  Nicholas  Biddle,  an  agent  of  the  United 
States  Bank,  and  were  paid  for,  at  the  rate  of  is. 
6d.  per  dollar,  in  five  equal  instalments  on  the 
first  day  of  November,  1838,  and  on  the  first  days 
of  January,  March,  May,  and  July,  1839.  Of  these 
bonds  1,543  were  afterwards  deposited  by  the 
Bank  of  the  United  States  as  security  for  loans  to 
it  in  Europe,  and  some  of  them  fell  into  the  hands 
of  Hope  &  Co.  of  Amsterdam. 

With  the  proceeds  of  this  sale  the  bank  com- 
menced business.2  Circumstances  were  unfavor- 
able to  it  from  the  beginning.  President  Jackson's 
specie  circular  and  the  war  on  the  United  States 
Bank  had  already  brought  the  people  of  the  State 
into  financial  straits.  There  was  need  of  more 
money;  and  the  proper  way  to  obtain  it,  according 
to  the  notions  of  the  time,  was  to  charter  new 
banks.  Demands  for  chartei-s,  therefore,  came  to 
the  legislature  thick  and  fast,  and  for  a  time  they 
were  gi-anted  without  hesitation,  as  the  following 
table  shows  :  — 

1  For  the  supplemental  act,  see  Laws  of  Mississippi  for  1838, 
p.  33;  also  Appendix  III. 

2  The  charter  authorized  the  opening  of  the  bank  as  soon  as 
§500,000  were  paidjxuaLthe  stock. 


36  BEPUBIATION  OF  STATE  DEBTS 

Jiank  capital  authorized  in  1833  .  .  $  6,000,000  i 

"         "  "  "  1836  .  .  21,000,000 

"         '♦  "  "  1837  .  .  10,300,000 

"         "  "  "  1838  .  .  15,500,000 

No  one  at  first  seemed  to  appreciate  the  danger 
of  this  policy,  notwithstanding  the  fact  that  nu- 
merous bank  failures  in  New  England,  New  York, 
and  the  greater  part  of  the  South  and  West  pointed 
clearly  to  it.  The  Governor,  however,  did  finally 
conclude  that  the  State  was  suffering  from  an  over- 
issue of  bank  notes,  and  vetoed  thereafter  the 
charters  granted  by  the  legislature.  Unfortunately, 
he  began  to  veto  just  after  he  had  approved  the 
charter  for  the  Union  Bank  and  the  act  supple- 
mental to  it.2 

Having  thus  commenced  its  existence  under  the 
most  unfavorable  circumstances,  the  bank  should 
have  been  managed  with  great  discretion  and  con- 
servatism. But,  on  the  contrary,  its  capital  was 
loaned  to  insolvent  individuals  and  corporations, 
and  its  management  resembled  that  of  a  gambling 
concern .3  In  less  than  two  years  after  the  grant- 
ing of  its  charter  it  was  hopelessly  insolvent.* 

In  January,  1841,  the  Governor  communicated 
to  the  legislature  the  facts  concerning  the  bank's 

1  Bankers'  Mafjazine,  Nov.  1849,  p.  341. 

2  See  **  Nine  Years  of  Democratic  Rule  in  Mississippi,"  p.  19. 

8  See  "  The  Origin  of  Repudiation,"  Bankers'  Magazine,  De- 
cember, 1840. 

4  "Report  of  Bank  Commission  to  the  legislature  of  the  State 
of  Mississippi,  declared  Jan.  4,  1840. 


IN  MISSISSIPPI^  FLORIDA,  AND  ALABAMA.    37 

condition,  and  recommended  that  it  be  placed  in 
liquidation,  and  that  the  live  millions  of  bonds 
negotiated  in  1838  be  repudiated.  He  claimed 
that  these  bonds  were  illegal,  and  that  fraud  had 
been  perpetrated  in  their  issue.^  hi  a  letter  to 
Hope  &  Co.  of  Amsterdam,  who  demanded  pay- 
ment of  overdue  interest,  he  again  insisted  upon 
repudiation.^  The  legislature  of  1841  protested  in 
vigorous  terms  against  this  recommendation,  but 
the  people  showed  their  approval  by  sending  to  the 
capital  in  1842  a  legislature  which  denied  that  the 
State  was  under  legal  or  moral  obligations  to  pay 
the  bonds  in  question. 

The  chief  argument  used  by  the  repudiationists 
was  the  unconstitutionality  of  the  supplemental 
act  under  which  these  bonds  were  issued.*  This 
act,  it  was  claimed,  was  something  more  than  an 
amendment  to  the  original  charter,  and,  according 
to  the  constitutional  provision  already  quoted, 
should  have  received  the  sanction  of  two  legisla- 
tures. The  argument  was  based  upon  the  fact 
that  the  supplemental  act  ordered  the  sale  of 
bonds  in  payment  of  stock  in  the  Union  Bank, 
while  the  original  act,  which  was  passed  in  a  con- 

'  See  article  on  "  The  Origin  of  Repudiation  "  in  the  Bankers* 
Mar/azine  for  December,  18-Ki. 

2  The  letter  mentioned  is  quoted  in  the  Bankers^  Mar/azine  for 
November,  1849,  in  an  article  entitled  "  Repudiation." 

8  For  an  able  presentation  of  this  argument,  see  Jefferson 
Davis's  letter  in  reply  to  an  attack  of  tlie  London  Times,  quoted  in 
the  jankers*  Magazine  for  November,  1849,  p.  3G3. 


38  REPUDIATION   OF  STATE  DEBTS 

stitutional  maimer,  authorized  no  such  purchase, 
but  simply  the  issue  of  bonds  under  certain 
definite  conditions,  none  of  which  had  been  com- 
plied with  in  the  issue  of  the  five  millions. 

Another  illegal  proceeding  was  the  sale  of  the 
bonds  on  credit,  whereas  the  original  act  forbade 
a  sale  below  par.  It  was  claimed  that  a  sale  on 
credit  practically  amounted  to  a  sale  below  par, 
interest  being  paid  on  the  whole  amount  from  the 
beginning.  It  was  further  claimed  that  the  State 
suffered  loss  from  the  change  in  the  stipulations 
from  dollars  and  cents  to  pounds,  shillings,  and 
pence. 

Honest  differences  of  opinion  have  been  ex- 
pressed concerning  the  validity  of  these  arguments, 
and  especially  concerning  the  alleged  unconstitu- 
tionality of  the  supplemental  act.  That  the  rep- 
resentatives of  the  people,  however,  then  and  for  a 
long  time  after,  saw  nothing  wrong  in  this  act  and 
the  operations  of  the  Governor  and  bank  officers  in 
the  negotiation  of  the  bonds  is  evident  from  the 
following  facts.  .The  first  legislature  which  met 
after  the  sale  of  the  bonds  passed  the  following 
resolution :  "  Resolved  that  the  sale  of  the  bonds 
was  highly  advantageous  to  the  State  and  the 
bank,  and,  in  accordance  with  the  injunctions  of 
the  charter,  .  .  .  bringing  timely  aid  to  an  embar- 
rassed community."  The  next  legislature  (1840) 
uttered  no  protest  against  the  bonds,  though  it 
legislated  concerning  the  bank.     The  acquiescence 


IN  MISSISSIPPI,  FLORIDA,  AND  ALABAMA.    39 

of  two  successive  legislative  bodies  should  —  in 
equity,  at  least,  if  not  in  law  —  be  interpreted  as 
giving  validity  to  the  act  under  which  the  bonds 
were  issued,  as  well  as  to  the  manner  of  their 
issue. 

This  view  of  the  case  certainly  becomes  tenable 
when  we  review  the  decisions  of  Mississippi's  own 
courts.  The  State  Constitution  at  the  time  of  the 
issue  of  these  bonds  permitted  suit  to  be  brought 
against  the  State  in  the  Court  of  the  Chancellor, 
and,  on  appeal,  in  the  High  Court  of  Errors  or 
Appeals.  The  holders  of  repudiated  bonds  availed 
themselves  of  this  constitutional  privilege,  and 
both  courts  decided  that  the  State  was  legally  and 
morally  bound  for  the  payment  of  the  bonds. 

In  the  case  of  Campbell  v.  Mississippi  Union 
Bank  (6  H.  625)  the  court  made  the  following 
statement  concerning  the  supplemental  act  claimed 
to  be  unconstitutional :  "  The  supplemental  act 
makes  no  alteration  whatever  in  regard  to  this 
section  (Sec.  5  of  the  original  act  which  pledged 
the  faith  of  the  State).  It  changes  in  some  re- 
spects the  mere  detail  of  the  original  charter  in 
the  mode  of  carrying  the  corporation  into  success- 
ful operation,  and  authorizes  the  Governor  to  sub- 
scribe for  the  stock  on  the  part  of  the  State.  The 
object  of  this  pledge  is  not  changed ;  on  the  con- 
trary, the  supplemental  act  was  passed  in  aid  of 
the  original  design.  In  applying  the  constitu- 
tional test  to  the  fifth  section,  I  am  not  able  to 


40  REPUDIATION  OF  STATE  DEBTS 

perceive  any  reason  which  to  me  seems  sufficient 
to  justify  that  it  is  unconstitutional." 

In  the  case  of  the  State  of  Mississippi  v.  Johnson 
(3  C,  p.  755)  the  court  says :  "From  the  view  we 
take  of  the  questions  connected  with  this  branch 
of  the  subject,  we  are  compelled  to  hold  that  the 
supplemental  act  was  not  void  in  consequence  of 
not  having  been  passed  in  conformity  with  the 
direction  contained  in  the  ninth  section  of  the 
seventh  article  of  the  constitution." 

Further  on  (p.  762)  in  the  same  decision  the 
statement  is  made:  '^  Having  examined  the  several 
grounds  on  which  it  was  alleged  that  the  supple- 
mental act  was  void,  we  have  come  to  the  con- 
clusion that  it  was  not  void,  but  hold  it  to  be  a 
valid  legislative  enactment." 

Regarding  the  claim  that  the  bonds  were  sold 
for  less  than  their  par  value  and  hence  were  uncon- 
stitutional, the  court  said:  "We  are  of  opinion 
that  it  does  not  appear  from  the  facts  of  the  case 
that  the  bonds  were  sold  for  less  than  their  par 
value;  consequently  that  the  sale  was  neither 
illegal  nor  void"  (p.  769). 

Before  recording  the  last  act  in  this  repudiation 
drama,  it  will  be  well  to  trace  the  history  of  the 
other  repudiated  bonds  to  which  reference  was 
made  above.  They  were  the  so-called  Planters' 
Bank  bonds.  This  institution  was  chartered  by 
the  State  in  1830  with  an  authorized  capital  of 
$3,000,000,  of  which  $2,000,000  were  reserved  for 


IN  MISSISSIPPI,  FLORIDA,  AND  ALABAMA.    41 

the  State.  Bonds  to  the  amount  of  $500,000  were 
accordingly  issued  in  July,  1831,  and  the  remain- 
ing 11,500,000  in  March,  1832.  These  bonds  were 
sold  in  the  Philadelphia  market  at  a  price  which 
yielded  the  State  a  premium  of  about  1250,000.^ 
This  sum  was  set  aside  as  a  sinking  fund,  into 
which  it  was  decided  to  turn  the  proceeds  of  the 
State's  share  of  the  bank  dividends. 

The  bank  flourished  well  up  to  1839.  In  the 
mean  time  it  had  established  bmnches  in  several 
cities  of  the  State ;  had  issued  a  large  circulation 
and  received  large  deposits  ;  and,  during  a  portion 
of  the  period,  had  paid  ten  per  cent  dividends. 
The  sinking  fund  in  1839  had  grown  to  1800,000. 
In  this  year,  however,  fortune  changed.  The 
period  of  the  bank's  prosperity  coincided  with  the 
period  of  inflation  which  has  been  described,  and 
when  the  bubble  of  bank  credit  burst  throughout 
the  State,  it  found  itself  unable  to  meet  its  obliga- 
tions. Unable  to  pay  interest  on  the  bonds,  the 
State  was  called  upon  to  meet  the  deficiency. 
This,  however,  she  failed  to  do.  No  one  at  this 
time  seriously  proposed  the  repudiation  of  the 
bonds,  but  the  State  was  delinquent  in  letting 
the  interest  go  by  default.  The  sinking  fuiid, 
on  account  of  bad  investments,  shrunk  rapidly, 
amounting  in  1840  to  1525,765  and  in  1848  to  no 
more  than  $100,000. 

1  See  article  on  "  Banking  and  Repudiation  in  Mississippi  "  in 
Bankers'  Magazine  for  August,  1863. 


42  REPUDIATION  OF  STATE  DEBTS 

In  the  legislative  session  of  1848-49  the  sub- 
ject of  the  Planters'  Bank  bonds  and  the  overdue 
interest  on  them  was  agitated.  The  sentiment  in 
favor  of  paying  them  and  the  interest  due  so  far 
as  possible  prevailed,  and  a  law  was  passed  author- 
izing the  application  of  the  sinking  fund  to  this 
latter  purpose.  There  was  developed,  however, 
considerable  opposition  to  this  measure,  and  a 
desire  to  repudiate  the  bonds  manifested  itself  on 
all  sides.  The  State  Treasurer  refused  to  pay  the 
coupons  on  certain  bonds  which  were  presented, 
on  the  ground  that  those  coupons  were  first  to  be 
paid  which  were  cut  from  the  oldest  bonds,  or, 
rather,  that  the  interest  must  be  paid  on  the  oldest 
bonds  first.  A  suit  was  brought  for  a  mandamus 
compelling  him  to  make  the  payment,  and  thus  an 
opportunity  was  given  the  court  to  decide  the 
question  concerning  the  validity  of  these  bonds. 
It  is  a  noticeable  fact  that  no  one  connected  with 
this  suit  so  much  as  suggested  that  these  bonds 
were  in  any  respect  invalid.  It  was  taken  for 
granted  that  they  were  legal  and  constitutional, 
and  that  they  ought  to  be  paid.^ 

As  in  the  case  of  the  Union  Bank  bonds,  so  here 
the  opinion  of  the  courts  seemed  to  have  very  little 
weight.  The  mania  of  repudiation  seemed  to  have 
infected  the  whole  people.  They  only  thought  of 
ridding  themselves  of  a  burden,  and  did  not  con- 
sider the  equities  of  the  case.     At  the  election  of 

1  See  Wilson  v.  Griffith,  2  C,  p.  468. 


IN  MISSISSIPPI,  FLORIDA,  AND  ALABAMA.    43 

1852  the  question  was  submitted  to  popular  vote 
whether  a  tax  should  be  levied  to  pay  the  interest 
on  the  Planters'  Bank  bonds,  and  a  majority  of 
4,000  against  the  levy  of  such  a  tax  was  returned. 
This  vote  undoubtedly  meant  that  the  people  were 
in  favor  of  the  repudiation  of  these  bonds,  and 
willing  legislatures  so  interpreted  it. 

The  fate  of  botli  these  and  the  Union  Bank 
bonds  was  sealed  by  the  constitution  adopted  in 
1875,  which  contained  the  following  clause  :  "Nor 
shall  the  State  assume,  redeem,  secure,  or  pay  any 
indebtedness  claimed  to  be  due  by  the  State  of 
Mississippi  to  any  person,  association,  or  corporation 
whatsoever,  claiming  the  same  as  owners,  holders, 
or  assignees  of  any  bond  or  bonds  known  as  the 
Union  Bank  bonds  or  the  Planters'  Bank  bonds." 
Since  that  time  the  State  has  paid  no  heed  to  the 
cries  of  her  numerous  creditors,  or  to  the  reproaches 
of  her  sister  States,  or  to  Wall  Street's  opinion  of 
her  credit. 

Florida. 

Florida,  unlike  her  sister  States  in  the  South, 
has  had  two  attacks  of  the  disease  of  repudiation. 
During  the  first  one  she  disposed  of  $3,900,000  of 
bonds  issued  or  indorsed  for  banks,  and  during 
the  second  of  $4,000,000  of  railroad  aid  bonds. 

The  story  of  the  bank  bonds  is  long  and  inter- 
esting, but  for  present  purposes  it  may  be  briefly 


44  REPUDIATION  OF  STATE  DEBTS 

told.  In  1833  the  territory  chartered  the  Union 
Bank  of  Florida  with  an  authorized  capital  of 
13,000,000,  which  sum  was  raised,  as  authorized 
by  the  charter,  by  a  sale  of  territorial  bonds. 
Lands  and  slaves  of  stockliolders  were  hypothe- 
cated to  the  territory  as  security.  The  charter 
prescribed  that  the  bonds  must  not  be  sold  below 
par ;  that  the  property  to  be  hypothecated  as  se- 
curity should  be  appraised  according  to  certain 
regulations;  and  that  a  portion  of  the  profits  of 
the  bank  should  accrue  to  the  territory  in  consid- 
eration of  the  aid  received.^  The  stockholders 
were  not  obliged  to  pay  any  part  of  the  amount 
they  subscribed,  but  simply  to  secure  their  sub- 
scription by  bonds  or  mortgages.  The  bonds  were 
sold  mostly  in  Europe  in  1834,  1838,  and  1839, 
and  at  a  "nominal"  discount  of  from  three  to  ten 
per  cent.2  The  directors  of  the  bank  interpreted 
the  charter  to  mean  that  the  bonds  must  not  be 
sold  below  par  in  the  funds  of  Florida^  hence  eight 
or  ten  per  cent  discount  in  London  amounted  to  a 
considerable  premium  according  to  their  notion, 
and  the  discount  was  "  nominal "  rather  than  real. 
The  bank  began  business  on  the  16th  of  Janu- 
ary, 1835.  Most  of  its  stock  was  owned  by  a 
comparatively  few  persons,  to  whom  was  loaned 

1  See  Laws  of  Florida  for  1833. 

2  See  letter  of  the  bank  president  to  the  Chairman  of  the 
Committee  on  Banks  appointed  in  1840.  —  Ex.  Doc.  No.  Ill,  2d 
Session  of  Twenty-sixth  Congress,  vol.  iv.  p.  298. 


IN  MISSISSIPPI,  FLORIDA,  AND  ALABAMA.    45 

the  greater  part  of  its  capital.  The  security  was 
the  stock  held,  which,  however,  had  not  been  paid 
for,  but  which  was  secured  by  lands  and  slaves, 
purchased  with  the  proceeds  of  the  loans.  ^  The 
interest  on  the  bonds  sold  in  1834  was  paid  by  the 
negotiation  of  new  bonds,  and  the  bank  was  able 
to  continue  this  process  until  all  the  bonds  author- 
ized to  be  issued  had  been  disposed  of.  The  bank 
was  also  guilty  of  overti-ading  and  of  issuing  an 
excessive  amount  of  circulating  notes. 

May  10,  1837,  the  bank  suspended  specie  pay- 
ments, and  grave  fears  concerning  its  solvency 
were  felt.  It  was  unable  to  resume  payment  of 
specie  in  1839  and  1840,  when  most  solvent  banks 
of  other  States  resumed,  and,  indeed,  it  never 
again  became  a  specie-paying  bank.  In  1842  it 
failed  to  pay  the  interest  on  the  bonds  loaned  it, 
and  the  question  of  the  territory's  liability  — 
which  had  been  under  discussion  for  two  or  three 
years  at  least  —  became  a  live  issue. 

In  1840  the  Judiciary  Committee  of  the  terri- 
torial legislature,  to  which  was  referred  the  ques- 
tion of  the  right  of  the  territory  to  pledge  the 
faith  of  the  people  in  aid  of  corporations,  expressed 
an  adverse  opinion  in  the  following  resolutions :  — 

1.  Resolved^  That  the  power  of  the  Governor 
and  Legislative  Council  of  the  Territory  of  Flor- 

1  See  Report  of  Commission  on  Banks  appointed  by  territorial 
legislature  of  1840.  —  Ex.  Doc.  No.  Ill,  2(1  Session  of  Twenty- 
sixth  Congress  p.  278. 


46  BEPUBIATION  OF  STATE  DEBTS 

ida,  delegated  by  Congress  over  "  all  rightful 
subjects  of  legislation,"  under  that  clause  in  the 
Constitution  which  invests  Congress  with  authority 
"  to  make  all  needful  rules  and  regulations  respect- 
ing the  territory  and  other  property  belonging  to 
the  United  States,"  does  not  extend  to  the  creation 
of  banks  with  exclusive  privileges  and  franchises, 
nor  to  the  issuing  of  bonds  and  guarantees  in  aid 
of  such  institutions,  pledging  the  faith  and  credit 
of  the  people  of  Florida. 

2.  Resolved^  That  such  pledge  of  the  faith  and 
credit  of  the  people  of  Florida  is  null  and  void.^ 

Though  the  opinions  of  eminent  lawyers  ^  were 
diametrically  opposed  to  the  sentiment  expressed 
in  these  resolutions,  subsequent  governors  ^  of  the 
Territory  encouraged  the  people  in  the  welcome  be- 
lief that  the  bonds  issued  in  aid  of  banks  were 
null  and  void  on  account  of  their  illegality.  At 
the  time  the  Union  Bank  defaulted,  and  subse- 
quently Governor  Call  *  —  who  was  an  exception  to 
the  rule  —  opposed  the  plan  of  repudiation,  but 
claimed  that  the  Territory  was  not  liable  until  all 
the  resources  of  the  bank  were  exhausted.  Un- 
fortunately, the  people  as  represented  in  the  Legis- 

1  Ex.  Doc.  2(1  Session  of  Twentieth  Congress,  vol.  iv.  p.  2G9. 

2  See  in  the  above-mentioned  document  the  opinions  of  James 
Kent,  Horace  Binney,  Peter  A.  Jay,  and  Daniel  Webster. 

3  See  message  of  Governor  Branch  dated  Jan.  10,  1845,  and  the 
message  of  Governor  Reid  dated  Jan.  11,  1846.  —  Ex.  Doc.  1st  Ses- 
sion Twenty-ninth  Congress,  pp.  G85  and  779  respectively. 

4  See  quotations  from  his  message  contained  in  the  above-men- 
tioned document. 


IN  MISSISSIPPI,  FLORIDA,  AND  ALABAMA.   47 

lative  Council  did  not  agree  with  him  when  the 
time  came  for  the  Territory  to  shoulder  her  obliga- 
tions, and  the  outcome  was  that  Florida  entered 
the  Union  as  a  State  adhering  to  the  doctrine  that 
her  new  form  of  political  life  released  her  from 
these  obligations. 

This  statement  applies  to  the  other  obligations 
of  the  Territory  in  behalf  of  banks,  amounting  in 
all  to  $900,000,  as  well  as  to  the  bonds  of  the  Union 
Bank,  and  it  is  only  necessary  to  state  briefly  the 
nature  of  these  obligations. 

The  Bank  of  Pensacola  was  chartered  in  1831 
with  an  authorized  capital  of  $200,000,  and  began 
business  Nov.  28,  1833.  Early  in  1835  it  was 
authorized  by  act  of  the  Legislative  Council  to  in- 
crease its  capital  to  $2,500,000,  and  to  purchase 
stock  in  the  Alabama,  Florida,  and  Georgia  Rail- 
road. To  aid  in  tliis  purchase  the  bank  was  furtlier 
authorized  to  issue  its  bonds  to  the  amount  of 
$500,000,  and  the  Governor  was  authorized  to 
indoi-se  them  in  behalf  of  the  Territory.  The 
bank  executed  the  provisions  of  this  act,  and  the 
bonds  were  duly  issued  and  indorsed,  and  the  rail- 
road stock  purchased.  The  Territory  received  as 
security  a  mortgage  on  the  capital  stock  of  the 
bank,  including  the  railroad  shares. 

The  life  of  this  institution  was  very  short.  By 
1843  it  had  passed  out  of  existence.  The  causes 
of  its  early  demise  were  many ;  but  chief  among 
them  was  the  investment  of  too  much  money  in 


48  BEPUDIATION  OF  STATE  DEBTS 

the  Alabama,  Florida,  and  Georgia  Railroad.  This 
road  failed,  and  the  mortgage  held  by  the  Territory 
proved  worthless.  The  only  alternative  left  being 
repudiation  or  payment  of  the  bonds  by  taxation, 
the  former  was  adopted  for  the  reasons  mentioned 
above. 

The  Southern  Life  Insurance  and  Trust  Com- 
pany was  incorporated  Feb.  14,  1835.  Its  char- 
ter granted,  among  other  powers,  the  right  to 
insure  life ;  to  receive  moneys  in  trust  at  such 
rates  of  interest  as  could  be  obtained,  not  exceed- 
ing eight  per  cent  per  annum;  and  to  buy,  dis- 
count, and  sell  drafts,  promissory  notes,  and  bills  of 
exchange.  Its  capital  stock  was  fixed  at  12,000,000, 
with  the  privilege  of  increasing  it  to  $4,000,000. 
The  company  was  authorized  to  issue  bills  or  notes, 
other  than  drafts  or  bills  of  exchange,  to  the 
amount  of  capital  actually  paid  in,  and,  in  addition^ 
certificates  of  one  thousand  dollars  each,  bearing 
not  more  than  six  per  cent  interest,  for  the  pay- 
ment of  which  the  faith  of  the  Territory  was  to  be 
pledged  by  the  indorsement  of  the  Governor.  As 
security  the  charter  provided :  "  That  in  case  the 
said  company  shall  make  defaults  in  payment  of 
the  principal  or  interest  of  such  certificates,  it  shall 
be  the  duty  of  the  Court  of  Appeals  of  said  Terri- 
tory, on  being  certified  of  the  fact  by  the  Govern- 
or, to  issue  an  appropriate  process  to  the  marshal, 
commanding  him  to  take  so  much  of  the  money, 
choses  in  action,  or  other  effects  or  property  of  said 


IN  MISSISSIPPI,  FLORIDAy  AND  ALABAMA.    49 

company,  and  bring  the  same  into  court  forthwith 
as  will  be  sufficient  to  indemnify  the  government 
from  loss  by  reason  of  such  default,  and  the  court 
is  hereby  empowered  to  direct  the  sale  of  the 
same.'*  * 

The  company  commenced  operations  in  the 
same  year  that  it  was  chartered,  before  the  act  of 
incorporation  had  been  approved  by  Congress.  The 
Senate  Committee  on  Finance,  of  which  Daniel 
Webster  was  chairman,  made  a  report  ^  in  June, 
1836,  which  strongly  disapproved  the  act,  but  rec- 
ommended the  amendment  of  the  charter  in  view 
of  the  fact  that  the  company  had  already  com- 
menced operations.  Amendments  were  made  in 
February,  1837,  and  February,  1838,  but  they  in- 
creased rather  than  limited  the  powers  already 
granted. 

The  certificates  issued  and  guaranteed  aggre- 
gated $400,000  at  the  time  the  Territory  was  called 
upon  to  meet  the  obligations  incurred  in  behalf  of 
this  company.  The  property  she  was  authorized 
to  seize  and  sell  had  no  existence,  and  she  would  of 
necessity  have  lost  the  face  value  of  the  certificates 
had  she  not  taken  refuge  behind  the  claim  that  as 
a  State  she  was  not  responsible  for  the  debts  con- 
tracted in  behalf  of  banks  and  other  corporations 
during  her  Territorial  life. 

1  Ex.  Doc.  No.  226,  1st  Session  Twenty-ninth  Congress,  vol.  vHi. 
p.  74G. 

2  Sen.  Doc.  No.  409,  1st  Session  Twenty-fourth  Congress,  vol.  vi. 


50  EEPUDIATION  OF  STATE  DEBTS 

The  reasons  assigned  for  the  repudiation  of  the 
obligations  already  described  are  entirely  fanciful, 
and  furnish  grounds  for  the  claim  that  the  Terri- 
torial authorities  were  hard  pressed  to  assign  a 
rational  cause  for  their  action.  A  very  real  and 
much  better  reason  for  repudiation  could  have  been 
assigned,  and  indeed  was  given  by  the  representa- 
tives of  the  Territory,  in  their  debates  upon  the 
question  in  the  session  of  1841.  About  1840  the 
population  of  Florida  was  estimated  at  about  fifty 
thousand  souls.  Hence  the  debt  which  the  failure 
of  these  banks  brought  upon  her  amounted  to  over 
fifty  dollars  per  capita,  and  the  further  issues 
which  were  demanded  by  the  acts  chartering  the 
banks  would  have  brought  the  debt  to  about  two 
hundred  dollars  per  capita.^  There  was  very  little 
wealth  in  the  Territory  at  the  time,  and  it  would 
have  been  impossible  to  pay  the  interest  on  such  a 
debt  and  to  meet  the  current  expenses  of  the  Ter- 
ritorial government.  It  is  difficult  to  see,  there- 
fore, how  the  holders  of  these  bonds  could  have 
obtained  either  principal  or  interest.  It  is  possible 
that  in  more  prosperous  days  the  State  might  have 
paid  her  old  debts ;  but,  in  the  light  of  her  subse- 
quent financial  history,  we  must  acknowledge  that 
this  possibility  was  very  remote. 

The  constitution  under  which  Florida  entered 
the  Union  as  a  State  made  it  "  the  duty  of  the 
General  Assembly  as  soon  as  practicable  to  ascer- 

1  See  Tenth  Census,  vol.  vii.  p.  587. 


IN  MISSISSIPPI,  FLORIDA,  AND  ALABAMA.    51 

tain  by  law  proper  objects  of  improvement  in  rela- 
tion to  roads,  canals,  and  navigable  streams,  and 
to  provide  for  a  suitable  application  of  such  funds 
as  may  be  appropriated  for  such  improvements.*'  ^ 
In  order  to  carry  out  what  were  understood  to  be 
the  provisions  of  this  clause,  an  act  was  passed  in 
January,  1855,  providing  for  the  encouragement 
of  a  liberal  system  of  internal  improvements,  and 
authorizing  the  issue  of  State  bonds  to  the  amount 
of  $10,000  per  mile  in  aid  of  railroads.  The  act 
provided  that  such  bonds  should,  constitute  a  first 
mortgage  lien  on  the  roads,  their  equipments  and 
franchises.  It  was  subsequently  amended  so  as  to 
permit  the  issue  of  bonds  to  the  amount  of  #16,000 
per  mile,  and  to  permit  the  Governor,  in  case  a 
company  defaulted  in  the  payment  of  either  prin- 
cipal or  interest,  or  any  part  thereof,  after  twelve 
months  to  enter  upon  and  take  possession  of  the 
road  and  its  franchises,  and  to  sell  them  at  public 
auction.  Under  authority  of  these  acts  bonds 
to  the  amount  of  #4,000,000  were  issued  in  aid 
of  the  Jacksonville,  Pensacola,  and  Mobile  Rail- 
road and  the  Florida  Central,  bonds  of  these 
roads  of  an  equal  amount  being  taken  in  ex- 
change. 

Early  in  the  seventies  these  roads  defaulted  in 
their  interest  payments,  and  the  State  was  called 
upon  to  make  good  the  deficiency.  This  she  was 
utterly  unable  to  do.     Her  income  had  been  for 

1  Art.  XI.  Sec.  2. 


52  REPUDIATION  OF  STATE  DEBTS 

many  years  considerably  less  than  her  expenses.^ 
From  1846  to  1856  her  finance  reports  show  an 
average  annual  deficit  of  about  nine  thousand 
dollars.  Bonds  were  issued  from  time  to  time  for 
the  purpose  of  retiring  her  floating  debt,  and  the 
accumulating  interest  on  these  made  the  deficits 
larger  after  the  war.  The  financial  report  for  the 
year  ending  Dec.  31,  1873,  states  that  the  total 
receipts  for  that  year  were  $257,233.54,  while  the 
warrants  issued  during  the  same  period  amounted 
to  1304,214.35.  A  floating  debt  amounting  to 
$224,827.67  existed  at  the  same  time.2 

As  authorized  by  law,  the  State  took  possession 
of  the  defaulting  roads,  but  was  prevented  for  a 
long  time  from  selling  them  by  litigation  in  the 
courts.  The  case  of  the  State  was  complicated  by 
the  fact  that  the  Western  North  Carolina  Railroad 


1  The  following  table,  taken  from  the  Tenth  Census,  vol.  vii. 
p.  588,  shows  the  amount  of  the  deficit  for  the  years  named  :  — 

1846,  revenue  collected,  $27,597.28,  warrants  issued,  S5fi,000.57 
1847 

1848  " 

1849  "      " 
1850 
1851 
1852 
1853 

1854  " 

1855  " 


2  See  Financial  Chronicle  for  Feb.  8,  1873. 


45.357.60 

52,787.46 

56,832.72 

54,913.81 

58,638.11 

55,807.79 

46,079.84 

38,559.33 

57,141.10 

67,187.73 

55,619.63 

55,234.49 

57,278.36 

108,607.88 

62,801.51            •' 

53,417.13 

68,365.19           '• 

85,365.19 

$535,711.34 

$627,890.58 

IN  MISSISSIPPI,  FLORIDA,  AND  ALABAMA.    53 

had  acquired  a  first  mortgage  lien  on  the  Florida 
Central,  and  naturally  objected  to  its  being  sold 
for  the  benefit  of  the  State.  During  the  progress 
of  this  litigation,  cases  were  brought  before  the 
courts  involving  the  validity  of  the  railroad  aid 
bonds,  and  the  State  was  relieved  of  her  anxiety 
and  care  in  the  matter  by  a  decision  to  the  effect 
that  the  bonds  were  unconstitutional. 

The  court  claimed  that  the  constitution  did  not 
authorize  the  exchange  of  the  bonds  of  the  State 
for  those  of  railroad  companies,  but  simply  the 
issue  of  bonds  for  the  construction  of  public  works 
which  should  be  her  own  property.  The  follow- 
ing are  the  words  of  the  court  in  the  case  of  Hol- 
land V.  the  State  of  Florida  and  others :  "  Where 
in  the  constitution  can  authority  be  found  that 
will  authorize  the  State  bonds  to  be  issued  to  be 
exchanged  for  railroad  bonds  ?  This  swapping  of 
State  obligations  for  railroad  paper  at  the  will 
of  the  legislature,  ad  libitum,  is  certainly  a  new  idea 
begotten  by  those  who  believe  that  the  legislature 
is  the  dispenser  of  all  power,  and  that  it  only 
requires  a  sufficient  number  of  legislative  votes  to 
do  anything.  But  this  court  will  guard  the  con- 
stitution from  such  pernicious  construction."  ^ 

After  the  rendition  of  this  decision  the  State  no 
longer  troubled  herself  about  the  railroad  aid  bonds, 
and  subsequently  omitted  to  mention  them  as 
among  her  liabilities. 

1  15  Florida,  491. 


64  BEPUDIATION   OF  STATE  DEBTS 

Adding  the  14,000,000  of  bonds  with  accrued 
interest  thus  disposed  of  to  the  13,900,000  of  bank 
bonds  before  mentioned,  makes  the  aggregate  of 
Florida's  repudiation  amount  to  something  over 
eight  million  dollars. 

Alaba7na. 

The  first  constitution  of  Alabama,  adopted  July 
5,  1819,  authorized  the  establishment  of  a  State 
bank  with  as  many  branches  as  the  legislature 
might  deem  proper.  It  also  provided  that  at  least 
two-fifths  of  the  stock  in  these  banks  should  be 
reserved  for  the  State,  and  prescribed  a  number  of 
other  rules  to  w^iich  the  banks  were  to  be  subject. 
Under  the  authority  granted  in  this  article  of  the 
constitution,  the  legislature  established  a  central 
bank  with  several  branches,  and  laid  the  foundation 
of  the  State  debt.  In  pursuance  of  a  series  of  acts 
dating  from  1823  to  1826  the  State  became  pos- 
sessed of  bank  stock  to  the  amount  of  #8,000,000. 
A  portion  of  this  went  to  the  State  school  fund 
and  to  the  trustees  of  the  University  of  Alabama 
as  compensation  for  the  lands  granted  to  these 
respectively  by  the  federal  government. 

These  banks  prospered  greatly  during  their  early 
history.  The  greater  part  of  the  expenses  of  the 
State  was  paid  by  the  earnings  of  her  stock,  most 
of  her  direct  taxes  being  abolished  in  1836.  But 
during  the  financial  convulsion  of  1837  they  became 


IN  MISSISSIPPI,  FLORIDA,  AND  ALABAMA.   55 

involved  in  financial  difficulties,  and  suspended 
specie  payments.  A  special  session  of  the  legis- 
lature was  called  to  afford  relief,  and,  among  other 
measures,  an  act  was  passed  making  the  bills  of  the 
bank  receivable  for  dues  of  the  State.  Prosperity 
did  not  come  with  these  measures  of  relief,  however, 
but,  instead,  the  condition  of  the  banks  became 
worse  with  each  year,  until  in  1842  they  were 
placed  in  liquidation.  The  State  was  responsible 
for  their  bills  and  most  of  their  obligations,  and 
the  settlement  left  her  with  a  considemble  debt,  the 
interest  and  principal  of  which,  however,  she 
proved  herself  entirely  able  to  pay  by  resorting  to 
heavy  taxation.  She  met  her  interest  charge  reg- 
ularly each  year  before  the  war,  and  paid  princi- 
pal enough  to  reduce  the  debt  in  1861  to  $3,445,- 
000.^  During  the  war  she  paid  that  portion  of 
the  interest  which  was  due  on  the  bonds  held  in 
London,  but  paid  no  interest  in  New  York  after 
January,  1861.2 

When  the  war  closed  the  State,  of  course,  was 
in  a  prostrate  condition,  financially  as  well  as  oth- 
erwise exhausted  by  the  struggle  through  which 
she  had  passed,  and,  oA^ing  to  defective  revenue 
laws,  her  ordinary  sources  of  income  produced  very 
little.  In  1866  her  receipts  were  only  162,967.80, 
while  her  necessary  disbursements  were  1606,494.39, 

1  See  Tenth  Census,  vol.  vii.  p.  592. 

2  Of  the  total  debt  of  $3,445,000,  $1,336,000  were  held  in  Lon- 
don, and  $2,109,000  in  New  York.  Interest  on  the  London  portion 
was  paid  regularly  up  to  January,  1865. 


56  REPUDIATION  OF  STATE  DEBTS 

In  1867  her  income  increased  to  1691,048.86,  and 
her  disbursements  to  1819,434.85.  In  1868  and, 
indeed,  in  nearly  every  subsequent  year  until  1876, 
there  was  a  large  balance  against  her.^ 

In  order  to  meet  necessary  expenses,  the  legisla- 
ture of  1865  passed  an  act^  on  Dec.  15  which 
authorized  the  issue  of  bonds  to  the  amount  of 
$1,500,000  to  mature  in  twenty  years,  and  to 
bear  interest  at  eight  per  cent  if  they  were  dollar 
bonds,  and  at  six  per  cent  if  they  were  sterling 
bonds.  A  sufficient  amount  of  these  was  issued 
before  November,  1866,  to  bring  the  debt,  exclu- 
sive of  the  educational  and  university  funds,  up  to 
14,550,062.22.3  Other  bonds  and  certificates  of 
indebtedness  were  subsequently  issued  to  meet  the 
deficits,  thus  bringing  this  portion  of  the  State  debt, 
exclusive  of  the  educational  and  university  fund, 
to  15,382,800  on  Sept.  30,  1870,  and  to  86,543,800 
on  Sept.  30,  1871.*  It  was  increased  still  more 
under  authority  of  acts  passed  Dec.  31,  1872,  Feb. 
25, 1873,  and  Dec.  19,  1873. 

The  most  troublesome  portion  of  the  debt  of  this 
State  was  founded  by  an  act^  passed  Feb.  19, 
1867,  which  authorized  the  indorsement  of  railroad 

1  See  Financial  Chronicle  for  March  11,  1871. 

2  See  Laws  of  Alabama  for  1865,  p.  40. 

3  Tenth  Census,  vol.  vii.  p.  592. 

*  See  the  State  Auditor's  Report  for  the  year  ending  Sept.  30, 
1871 ;  also  the  Financial  Chronicle  for  Nov.  30, 1867,  and  March  11, 
1871. 

5  See  Laws  of  Alabama,  1866-67  p.  686. 


IN  MISSISSIPPI,  FLORIDA,  AND  ALABAMA.    57 

bonds  to  the  amount  of  '112,000  per  mile.  One 
clause,  providing  that  this  indorsement  be  made 
for  each  section  of  twenty  miles  of  completed  road, 
was  amended  by  an  act^  passed  Aug.  7,  1868, 
which  permitted  the  indorsement  to  be  made  for 
each  five  miles  finished  after  twenty  miles  had  been 
constructed,  and  the  indorsement  to  be  raised  to 
il6,000  per  mile.  As  security  for  this  indoi-se- 
ment,  the  State  was  to  be  given  a  first  mortgage 
on  the  roads;  and  by  an  act^  approved  Feb. 
21,  1870,  the  Governor  was  authorized  to  take  pos- 
session of  any  road  in  case  it  defaulted  in  payment 
of  interest,  and  to  sell  it  for  the  benefit  of  the  State, 
if  its  earnings  were  not  sufficient  to  pay  the  accru- 
ing interest.  The  same  act  also  states  that  in  case 
of  a  default  in  the  payment  of  interest  by  any 
road,  "  the  Auditor  of  the  State  is  authorized,  and 
it  is  made  his  duty,  upon  his  warrant,  to  draw  from 
the  treasury  any  sum  of  money  necessary  to  pay 
the  interest  on  any  of  the  bonds  indorsed  by  the 
State,  whenever  said  interest  is  not  provided  for  by 
the  company ;  and  to  pay  such  interest  when  due 
as  provided  for  in  this  act ;  and,  in  case  the  exi- 
gency requires,  the  Governor  is  hereby  authorized 
and  directed  to  negotiate  temporary  loans  for  such 
purpose,  and  pledge  the  faith  of  the  State  for  the 
payment  of  the  same,  so  that  the  interest  upon  all 
the  indoi-sed  bonds  of  the  State  shall  be  promptly 
paid  when  due." 

1  See  Laws  of  Alabama,  1868,  p.  198. 
S  Ibid.,  1870,  p.  149. 


58  REPUDIATION  OF  STATE  DEBTS 

The  railroad  companies  of  the  State  speedily 
took  advantage  of  these  acts.  Up  to  Nov.  15, 
1869,  12,600,000  of  railroad  bonds  had  been 
indorsed  ;  by  Sept.  30,  1870,  18,480,000 ;  ^  and  by 
Sept.  30,  1873,  118,686,000.  In  addition  to  this, 
$2,000,000  of  eight  per  cent  State  bonds  were  issued 
to  the  Alabama  and  Chattanooga  Railroad  under 
authority  of  an  act^  passed  Feb.  11, 1870,  and  later 
8300,000  of  State  bonds  were  issued  to  the  Mont- 
gomery and  Eufaula  Railroad  Company.  Of  all 
in  the  State,  the  former  company  was  the  most 
liberally  aided,  having  had  over  $5,000,000  of  its 
bonds  indorsed,  and  $2,000,000  of  State  bonds 
granted  to  it  directly. 

It  seems  that  with  ordinary  foresight  the  State 
officers  might  have  predicted  that  these  railroad 
companies  would  default  in  the  payment  of  in- 
terest on  these  indorsed  bonds.  Most  of  their 
roads  were  in  process  of  construction,  and  yielded 
no  revenue  ;  and  the  mere  fact  that  they  found  it 
necessary  to  call  upon  the  State  for  aid  was  in- 
dicative of  a  lack  of  funds.  It  might  also  have 
been  predicted  with  certainty  from  the  beginning 
that  the  payment  by  the  State  of  the  interest  on 
these  indorsed  bonds  would  reduce  her  to  bank- 
ruptcy. These  evils,  however,  were  either  not 
foreseen  or  not  heeded,  and  the  State  was  com- 
pelled  to   pass    through    the    humiliation   which 

1  See  Auditor's  Report  for  year  ending  Sept.  30,  1870. 

2  Laws  of  Alabama  for  1870,  p.  89. 


In  MISSISSIPPI,  FLORIDA,  ANt)  ALABAMA.    59 

inability  to  meet  obligations  brings.  The  Ala- 
bama and  Chattanooga  Railroad  Company  failed 
to  pay  the  interest  which  fell  due  Jan.  1,  1871,^ 
and  with  this  the  trouble  began.  The  State  took 
possession  of  the  road,  and  ultimately  sold  it,  after 
liaving  paid  out  nearly  a  million  dollars  in  interest 
on  its  bonds,  and  after  having  become  responsible 
for  the  payment  of  $312,000  in  receiver's  fees, 
and  1140,000  in  employees'  wages.  After  all  this 
she  was  still  liable  for  the  indorsed  and  direct 
bonds,  and  was  obliged  subsequently  to  com- 
promise them  all.  By  1873  the  other  subsidized 
railroad  companies  had  defaulted,  and  she  became 
responsible  for  the  interest  on  over  $18,000,000 
of  bonds  in  addition  to  the  burden  of  her  regular 
debt.  Of  course  she  was  obliged  to  suspend  the 
payment  of  interest,  and  her  debt  thus  increased 
with  frightful  rapidity  from  year  to  year. 

The  State  made  many  laudable  attempts  to 
meet  her  increasing  obligations,  and  to  provide 
for  the  payment  of  her  debts  in  full.  The  legisla- 
ture of  1872  passed  an  act  ^  establishing  a  sinking 
fund.  A  tax  of  one-twentieth  of  one  per  cent 
was  authorized  to  be  devoted  each  year  either  to 
the  purchase  of  State  bonds  or  of  railroad  bonds 
indorsed  by  the  State.  Early  in  1873  an  act^ 
was  passed  increasing  the  rate  of   taxation  fifty 

1  See  Financial  Chronicle  for  Jan.  7,  1871. 

2  Laws  of  Alabama  for  1871-72,  p.  13. 
8  Ibid.,  1872-73,  p.  4. 


60  MPUl)IATlON  OF  STATiJ  t>E:bf8 

per  cent.  On  April  21  of  the  same  year  another 
act  was  passed  designed  to  reduce  very  materially 
the  debt  itself.  It  was  known  as  the  "  4,000  per 
mile  act,"  ^  and  provided  for  the  exchange  of  State 
indorsed  railroad  bonds  for  direct  bonds  of  the 
State,  bearing  interest  at  seven  per  cent  in  gold, 
and  redeemable  in  thirty  years,  the  rate  of  ex- 
change being  four  thousand  dollars  of  the  former 
for  one  thousand  dollars  of  the  latter.  The  act 
further  provided  that  for  the  first  five  years  after 
the  issue  of  such  bonds,  the  company  to  whom 
they  were  issued  should  set  apart  three-fourths  of 
one  per  cent  of  its  gross  earnings  as  a  sinking- 
fund  for  their  redemption;  and  that  thereafter 
five  per  cent  of  their  gross  earnings  should  be  set 
aside  for  this  purpose.  This  act  was  by  no  means 
popular,  and  only  three  railroads  exchanged  bonds 
under  it,  but  by  so  doing  they  reduced  the  State's 
liabilities  83,468,000.2 

For  the  final  settlement  of  the  difficulty,  how- 
ever, more  radical  measures  were  adopted.  Dec. 
17,  1874,  an  act^  was  passed  authorizing  the 
appointment  of  commissioners  to  liquidate  and 
adjust  all   claims  against  the  State  arising  from 

1  Laws  of  Alabama  for  1872-73,  p.  45. 

2  Tlie  three  roads  were :  The  South  and  North  Alabama  Rail- 
road, the  Mobile  and  Alabama  Grand  Trunk,  and  the  Savannah  and 
Memphis.  The  total  amount  of  new  bonds  issued  was  $1,156,000, 
and  the  total  amount  of  indorsed  bonds  retired  was  $4,024,000.  — 
Financial  Chronicle,  June  19,  1875. 

8  Laws  of  Alabama  for  1874,  p.  102. 


IN  MISSISSIPPI,  FLORIDA,  AND  ALABAMA.    61 

bonds  issued  or  indorsed.  Three  commissionei-s 
were  accordingly  selected.  After  devoting  two 
years  to  their  task,  they  reported  a  plan  for  the 
settlement  of  the  debt,  which  plan  was  communi- 
cated to  the  legislature  by  the  Governor,  -and 
on  Feb.  23,  1876,  embodied  in  a  funding  act.^ 
Previous  to  this  a  new  constitution  had  been 
adopted  which  prohibited  the  State  from  engaging 
in  any  works  of  internal  improvement^  or  from 
lending  her  credit  to  any  individual  association  or 
corporation.  It  also  limited  the  amount  of  debt 
that  might  be  contracted  to  11,000,000.2 

The  following  are  the  chief  features  of  the 
funding  act :  — 

1.  All  the  indorsed  railroad  bonds  except  those 
held  by  the  Alabama  and  Chattanooga  Railroad 
were  omitted  from  the  provisions  of  the  act.  These, 
with  accrued  interest,  amounted  to  $4,705,000. 

2.  The  ordinary  debt  of  the  State  was  described 
as  class  "A."  For  the  principal  of  this,  new 
bonds  were  to  be  exchanged,  dollar  for  dollar,  to 
be  dated  July  1,  1876,  to  be  payable  in  thirty 
years,  and  to  bear  interest  at  two  per  cent  for  five 
years,  three  per  cent  for  five  years,  four  per  cent 
for  the  succeeding  ten  years,  and  five  per  cent 
thereafter  until  maturity.  The  authorized  bonds 
of  this  class  aggregated  $7,127,709.     The  interest 

1  Laws  of  Alabama  for  1875-76,  p.  130. 

2  See  Art.  IV.  Sec.  54;  and  Art.  X.  Sec.  3  of  the  constitution 
of  1875. 


62  REPUDIATION  OF  STATE  DEBTS 

which  had  accrued   for  a  number  of   years  was 
repudiated. 

3.  The  bonds  issued  under  the  "  4,000  per  mile 
act"  were  designated  as  class  "B."  The  amount 
recognized  was  $1,192,000,  in  exchange  for  which 
new  bonds  to  the  amount  of  $596,000  were  author- 
ized to  be  issued,  to  bear  interest  at  five  per  cent, 
but  to  be  in  other  respects  like  those  in  class 
"A." 

4.  As  class  "  C "  were  designated  the  bonds 
indorsed  for  the  Alabama  and  Chattanooga  Rail- 
road. These  amounted  to  $5,800,000,  and  they 
were  authorized  to  be  exchanged  for  new  bonds 
aggregating  in  amount  $1,000,000.  These  bonds 
were  to  mature  in  thirty  years,  and  to  bear  interest 
at  two  per  cent  for  the  first  five  years,  and  at  four 
per  cent  thereafter. 

5.  The  indebtedness  to  the  educational  fund 
amounting  to  $2,810,670,  and  five  per  cent  State 
certificates  amounting  to  $1,040,000,  were  to  be 
treated  in  the  same  manner  as  the  bonds  in  class 
"A." 

In  payment  of  the  $2,000,000  of  bonds  issued 
directly  to  the  Alabama  and  Chattanooga  Railroad 
Company,  land  granted  to  that  company,  variously 
estimated  in  amount  at  from  500,000  to  1,200,000 
acres,  was  turned  over  to  the  bondholders. 

Summarizing  the  above,  we  have  the  following 
table,^  showing  the  amount  of  the  old  debt  and  the 

1  Taken  from  the  Financial  Chronicle  for  Jan.  13, 1877. 


IN  MISSISSIPPI,  FLORILA,  AND  ALABAMA.    6$ 

amount  of  new  bonds  authorized  to  be  issued  for 
their  payment :  — 

Old  debt.  Nenr  debt 

authorized. 

Five  per  cent  State  certificates  ^1,040,000  $1,040,000 

Educational  fund  indebtedness  2,810,670  2,810,670 

Total  of  class  *' A "  .     .     .     .  7,416,800  7,127,709 

Total  of  class  "  B  "    ....  1,192,000  596,000 

Total  of  class  "  C  "    ....  5,300,000  1,000,000 

Total §18,759,470      $12,574,379 

Unprovided  for  except  as  above 

explained! 2,000,000 

State  indorsements  left  unpro- 
vided for 4,705,000 

Total  old  debt  (principal)  .      325,464,470 

If  to  the  difference  between  these  two  totals  be 
added  the  overdue  interest  on  these  various  classes 
of  bonds,  the  amount  of  Alabama's  repudiation  will 
be  not  far  from  815,000,000. 

1  See  page  62. 


VII. 

THE   CAUSES  OF   REPUDIATION. 


CHAPTER  VII. 

THE  CAUSES   OF   REPUDIATION. 

The  phase  of  financial  history  which  has  been 
described  with  considerable  detail  in  the  preceding 
chapters  must  now  be  viewed  as  a  problem  for  solu- 
tion. We  have  stated  the  facts,  and  we  must  now 
seek  their  explanation.  The  univei*sality  of  the 
repudiation  movement  in  the  South,  and  the  fact 
that  in  all  but  two  cases  it  appeared  in  each  of  the 
States  affected  at  nearly  the  same  time,  suggest 
common  causes,  and  invite  an  investigation  below 
tlie  surface  of  the  facts  which  have  been  presented. 
It  is  only  when  we  view  the  facts  as  one  whole  and 
attempt  their  classification  and  analysis  that  their 
true  meaning  and  explanation  become  apparent. 
It  is  the  purpose  of  the  present  chapter  to  reveal 
the  general  causes  of  repudiation,  and  to  determine 
their  permanent  or  adventitious  character. 

As  a  rule,  the  repudiating  States  have  attempted 
to  shield  their  honor  behind  the  bulwark  of  the 
law.  Only  in  one  or  two  cases  have  they  let  their 
debts  go  by  default  without  so  much  as  attempting 
a  legal  justification  of  their  acts.     We  have  seen 

199 


200  REPUDIATION  OF  STATE  DEBTS. 

•that  ill  some  cases  the  alleged  illegality  of  the  bonds 
repudiated  was  a  mere  pretext,  without  any  real 
foundation  in  fact ;  but  that  in  others  the  allegations 
were  true.  Of  this  latter  class  of  cases  Arkansas, 
Georgia,  and  South  Carolina  furnish  us  with  exam- 
ples. In  the  first-mentioned  State  the  ayes  and 
nays  had  not  been  recorded  in  the  case  of  the  law 
authorizing  some  of  her  bonds,  wliereas  her  con- 
stitution expressly  provided  that  they  should  be 
recorded.  A  subsequent  act  of  the  legislature 
deprived  the  State  of  all  moral  justification  for 
repudiation,  but  could  not  affect  the  constitution- 
ality of  it. 

In  the  issue  of  the  railroad  bonds  which  Georgia 
had  indorsed,  and  was  called  upon  to  j)ay,  a  vari- 
ety of  irregularities  had  been  practised.  Those 
issued  to  the  Alabama  and  Chattanooga  Railroad 
were  second  mortgage  bonds,  and  the  constitution 
provided  that  the  State's  indorsement  should  be 
placed  only  upon  first  mortgage  bonds.  The  act 
authorizing  the  State's  indorsement  of  the  bonds 
of  the  Bainbridge,  Cuthbert,  and  Columbus  Rail- 
road provided  as  a  condition  of  such  indorsement 
that  twenty  miles  of  said  road  should  first  be  com- 
pleted. As  a  matter  of  fact,  however,  not  a  foot 
of  the  road  was  ever  built,  while  the  bonds  were 
issued,  indorsed,  and  negotiated.  As  a  condition 
of  the  issue  of  bonds  in  aid  of  the  Cartersville 
and  Van  Wirt  Railroad,  the  act  provided  that  an 
equal  amount  must  be  invested  by  private  parties. 


THE  CAUSES  OF  REPUDIATION.  201 

Legislative  investigation  sliowed,  however,  that 
the  bonds  had  been  issued  in  entire  disregard  of 
this  clause  of  the  law.  The  name  of  tlie  Carters- 
ville  and  Van  Wirt  Railroad  was  changed  to  that 
of  the  Cherokee  Railroad,  and  new  bonds  were 
issued  to  it  under  the  new  name,  though  all  that 
the  law  authorized  had  been  issued  to  the  road 
under  the  old  name. 

The  illegality  discovered  in  South  Carolina  con- 
sisted in  one  case  in  the  issue  of  l|2,000,000  of 
bonds  under  an  act  which  authorized  the  issue 
of  only  $1,000,000,  and  in  another  case  in  the 
unconstitutionality  of  an  act  passed  for  the  relief 
of  the  treasury:^ 

For  the  purpose  of  our  investigation  into  the 
legal  justification  of  the  States  in  the  repudiation 
of  these  and  similar  issues,  they  may  be  classified 
under  the  following  heads  :  — 

1.  Those  which  were  not  authorized  by  any  law. 

2.  Those  which  were  authorized  by  laws  which 
were  unconstitutional. 

3.  Those  in  which  the  laws  authorizing  them 
had  not  been  strictly  complied  with. 

The  point  to  be  decided  in  each  of  these  cases  is 
whether  the  State  or  innocent  bondholders  sliould 
have  been  made  to  suffer  any  loss  that  the  illegal- 
ity in  question  entailed.  In  cases  in  which  a  State 
is  one  of  the  parties  we  have  very  few  legal  decis- 
ions to  guide  us  to  the  opinions  of  the  courts  on 
1  See  page  91, 


202  REPUDIATION  OF  STATE  DEBTS. 

this  point,  for  very  few  such  questions  have  been 
adjudicated,  owing  to  the  immunity  of  States  from 
suits  brought  by  individuals.  Cases  of  municipal 
bonds  precisely  similar,  however,  have  been  re- 
peatedly tried  in  the  courts,  and  from  these  we 
may  discover  the  law  upon  the  subject. 

Cases  coming  under  the  first  of  the  above  heads 
are  easy  to  decide.  No  court  would  hold  a  State 
responsible  for  bonds  for  the  issue  of  which  she 
had  given  no  authority  whatever.  Purchasers  are 
bound  to  see  to  it  that  the  bonds  in  which  they 
invest  have  been  authorized  by  law.  To  fail  here 
is  a  negligence  for  which  they  alone  are  responsible, 
and  for  which  they  must  and  should  suffer.  Of 
course  an  action  for  fraud  might  be  brought  against 
State  officers  who  would  presume  to  negotiate  such 
bonds  ;  but  such  an  action  would  concern  them  as 
individuals,  and  not  as  State  officials.  The  author- 
ity of  the  State's  agents  is  of  necessity  defined  by 
law,  and  the  interests  of  good  order  and  careful 
legislation,  as  well  as  the  safeguards  of  liberty, 
demand  that  these  laws  should  be  strictly  obeyed. 

On  this  point  Burroughs,  on  ''  The  Law  of  Public 
Securities,"  p.  5,  says :  "  All  who  deal  with  a  pub- 
lic agent  or  officer  must  take  notice  of  his  powers. 
He  derives  his  authority  from  the  law  which 
authorizes  his  appointment.  No  person  may  pro- 
fess ignorance  of  the  extent  of  the  powers  of  a 
public  agent.  (State  v.  Ha3^s,  53  Mo.,  578).  A 
private  agent  acting  in  violation  of  specific  instruc- 


THE  CAUSES  OF  REPUDIATION.  203 

tions,  yet  within  the  scope  of  a  general  authority, 
may  bind  his  principal ;  the  rule  as  to  the  effect  of 
a  like  act  of  a  public  agent  is  otherwise.  The 
latter  is  clothed  with  duties  and  powers  specifically 
defined  and  limited  by  public  law,  ignorance  of 
which  cannot  be  presumed  in  favor  of  those  deal- 
ing with  him.  This  is  the  reason  of  the  difference 
between  public  and  private  agents.  The  powei-s 
of  the  one  can  always  be  known ;  the  other  may 
not  be." 

Cases  in  which  the  law  authorizing  the  issue 
is  unconstitutional  are  more  complicated.  The 
decision  is  easy  and  simple,  provided  the  law  is 
declared  by  competent  authority  to  be  unconstitu- 
tional before  the  bonds  are  negotiated.  Such  a 
case  would  really  belong  under  the  first  head,  for 
a  law  which  has  been  declared  unconstitutional  has 
no  more  binding  force  than  if  it  had  never  been 
passed.  But  suppose  the  bonds  have  been  regu- 
larly and  properly  negotiated,  and  have  come  into 
the  hands  of  innocent  purchasers,  before  the  con- 
stitutionality of  the  law  authorizing  them  has  been 
questioned ;  and  suppose  further  that  the  law, 
though  plainly  unconstitutional,  has  not  been 
declared  so  by  competent  authority.  It  was  under 
precisely  such  conditions  as  these  that  the  repudi- 
ated unconstitutional  bonds  were  issued.  Are 
purchasers  of  bonds  bound  to  consult  the  records 
in  order  to  discover  whether  or  not  the  constitution 
has  been  complied  with  iia  the  passage  of  the  law, 


204  REPUDIATION  OF  STATE  DEBTS. 

or  is  it  sufficient  for  them  to  see  to  it  that  there 
is  a  law  authorizing  the  bonds  which  they  have 
purchased  ? 

It  must  be  admitted  that  the  answer  to  this 
question  is  not  easy.  On  the  one  hand,  it  may  be 
asked  of  what  good  are  constitutions  unless  the 
State  insists  upon  their  being  complied  with  to 
the  letter ;  and  on  the  other  hand,  it  may  be  asked 
whether  the  State  is  not  estopped  from  pleading 
the  unconstitutionality  of  a  law  by  the  action  of 
her  officers  who  negotiated  the  bonds,  and  by  that 
act  certified  to  their  validity. 

At  this  point  it  becomes  necessary  to  distinguish 
carefully  between  the  second  and  third  classes  of 
cases  into  which  illegal  bonds  are  classified, — in 
other  words,  between  violations  of  a  constitution 
and  of  a  statute  law.  In  the  hitter  class  of  cases, 
as  we  shall  presently  show,  the  ordinary  executive 
officers  of  the  State  are  competent  to  decide 
whether  or  not  the  law  has  been  complied  with ; 
in  the  former  class  of  cases  they  are  not.  The 
power  to  decide  concerning  the  constitutionality  of 
a  law,  in  all  the  States  of  our  Union,  has  been  con- 
ferred upon  some  court,  and  that  court  cannot,  in 
the  nature  of  the  case,  pronounce  a  decision  until 
some  case  has  been  brought  before  it,  and  that  may 
not  happen  until  years  after  the  bonds  have  been 
negotiated  and  have  passed  into  the  hands  of  inno- 
cent holders.  Unless,  after  a  law  has  been  pro- 
nounced unconstitutional  by  competent  authority, 


THE  CAUSES  OF  REPUDIATION.  205 

it  becomes  of  none  effect,  and  all  acts  based  upon 
it  lose  their  binding  force,  it  is  difficult  to  see 
how  constitutions  render  any  protection  to  people 
of  the  State.  The  preservation  intact  of  the  pro- 
tective cliaracter  of  the  fundamental  law  of  a 
State  seems,  therefore,  to  demand  that,  in  the  class 
of  cases  under  discussion,  the  bondholders  shall 
suffer  the  loss,  unless  other  more  important  inter- 
ests of  the  State  are  thereby  jeopardized.  The 
State  constitution  is  a  part  of  the  law  which  de- 
fines the  duties  of  officers,  and  purchasers  of  bonds 
are  bound  to  see  to  it,  not  only  that  their  purchases 
are  authorized  by  a  statute  law,  but  that  such  a 
law  does  not  conflict  with  the  constitution  of  the 
State.  The  law  relating  to  this  point  is  summar- 
ized in  "  Law  of  Public  Securities,'*  by  Burroughs, 
in  the  following  words :  "  Tlie  defects  of  want 
of  power  arising  from  a  violation  of  some  consti- 
tutional provision  are,  however,  of  such  a  charac- 
ter that  no  defence  avails  the  holder.  That  he  has 
paid  value  for  the  bonds  in  good  faith,  and  has  no 
actual  notice  of  the  defect,  is  immaterial.  Every 
person  is  bound  to  know  the  law,  statute  and 
constitutional,  and  this  constructive  notice  is  as 
effectal  as  an  actual  notice." 

The  third  class  of  cases  mentioned  above  brings 
to  our  attention  irregularities  in  the  compliance 
with  laws  authorizing  the  issue  of  bonds.  The 
number  of  these  is  great;  but  one  principle  has 
directed  decisions  on  such  points  in  the  case  of 


206  REPUDIATION   OF  STATE  DEBTS. 

municipal  bonds,  and  that  alone  needs  to  be  con- 
sidered. The  question  to  be  decided  in  these 
cases  is,  whether  the  holders  need  to  go  back 
of  the  recitals  on  the  bonds,  in  case  such  recitals 
state  that  the  law  has  been  complied  with.  The 
first  case  brought  before  the  Supreme  Court  of 
the  United  States  involving  this  question  was 
that  of  Knox  Countj^,  Indiana,  v.  Aspinwall, 
et  al.^  Since  this  furnished  the  precedent  which 
has  been  closely  followed  by  that  court,  it  will 
be  worth  while  to  give  an  account  of  it. 

This  county  refused  to  pay  bonds  that  had  been 
issued  in  aid  of  a  railroad  on  the  ground  that  the 
county  commissioners  who  issued  them  had  failed 
to  comply  with  that  clause  of  the  statute  which 
required  that  certain  notices  be  given  before  the 
matter  was  put  to  a  vote  of  the  people.  The  fol- 
lowing is  the  opinion  of  the  court:  "Where  the 
statute  of  a  State  provided  that  the  Board  of  Com- 
missioners of  a  county  should  have  power  to  sub- 
scribe for  railroad  stock,  and  issue  bonds  therefor 
in  case  a  majority  of  the  voters  of  the  county 
should  so  determine  after  a  certain  notice  should 
be  given  of  the  time  and  place  of  election,  and 
the  Board  subscribed  for  the  stock  and  issued  the 
bonds,  purporting  to  act  in  compliance  with  the 
statute,  it  is  too  late  to  call  in  question  the  exist- 
ence or  regularity  of  the  notices  in  a  suit  against 
them  by  the  holders  of  the  coupons  attached  to  the 


THE  CAUSES  OF  REPUDIATION.  207 

bonds,  who  are  innocent  holdere  in  this  coUateral 
way.  In  such  a  suit,  according  to  the  true  inter- 
pretation of  the  statute,  the  Board  were  the  proper 
judges  whether  or  not  a  majority  of  the  votes  in  the 
county  had  been  cast  in  favor  of  the  subscription 
to  the  stock.  The  bonds  on  their  face  import  a 
compliance  with  the  law  under  which  they  were 
issued,  and  the  purchaser  was  not  bound  to  look 
further  for  evidence  of  a  compliance  with  the 
conditions  to  the  grant  of  the  power." 

In  the  case  of  Colona  v.  Eaves,  92  U.  S'.  484, 
Mr.  Justice  Strong  confirmed  the  decision  in  the 
case  of  Knox  County,  etc.,  in  the  following 
words:  "Where  the  legislative  authority  has  been 
given  a  municipality,  or  to  its  officers,  to  subscribe 
for  the  stock  of  a  railroad  company,  and  to  issue 
municipal  bonds  in  payment,  but  only  on  some 
precedent  condition,  such  as  a  popular  vote  favor- 
ing the  subscription,  and  where  it  may  be  gathered 
from  the  legislative  enactment  that  the  officers  of 
the  municipality  were  invested  with  power  to 
decide  whether  the  condition  precedent  had  been 
complied  with,  their  recital  that  it  has  been,  made 
in  the  bonds  issued  by  them,  and  held  by  a  bona 
fide  purchaser,  is  conclusive  of  the  fact  and  bind- 
ing upon  the  municipality,  for  the  recital  is 
itself  a  decision  of  the  fact  by  the  appointed 
tribunal." 

Mr.  Justice  Bradley,  in  Humboldt  Township  v. 
Long,  et  a/.,  92  U.  S.  642,  says:  "We  have  sub- 


208  BEPUmATION  OF  STATE  DEBTS. 

stantially  held  that  if  a  municipal  body  has  law- 
ful power  to  issue  bonds  or  other  negotiable 
securities,  dependent  only  on  the  adoption  of 
certain  preliminary  proceedings,  such  as  a  popular 
election  of  the  constituent  body,  the  holder  in 
good  faith  has  a  right  to  assume  that  such  pre- 
liminary proceedings  have  taken  place,  if  the  fact 
be  certified  on  the  bonds  themselves  by  the 
authorities  whose  primary  duty  it  is  to  ascer- 
tain it." 

Another  case  bearing  upon  the  rights  of  bona  fide 
bondholders  was  that  of  Hackett  v.  Ottawa,  99 
U.  S.  86.  In  this  it  was  shown  that  the  bonds 
had  not  been  issued  for  the  purpose  prescribed  in 
the  act.  The  court  held  that  in  this  case  the 
bondholder  was  not  compelled  to  go  back  of  the 
recitals  on  the  bonds.  It  said  in  substance  that 
when  the  officers  of  a  municipality  recite  in  bonds 
issued  by  them  that  they  are  for  a  purpose  muni- 
cipal or  public,  this  recital  cuts  off  all  in- 
quiry as  to  the  purpose  for  which  they  were 
issued. 

In  another  case  Chief  Justice  Waite  said: 
"When  the  certificate  of  the  proper  officer  is 
found  on  the  bond,  the  purchaser  need  not  inquire 
whether  what  has  been  certified  to  is  true.  As 
against  a  bona  fide  holder,  the  public  is  bound 
by  what  its  authorized  agents  have  done  and  stated 
in  the  prescribed  form."  ^ 

1  Antony  v.  County  of  Jasper,  101  U.  S.  693. 


THE  CAUSES  OF  REPUDIATION.  209 

Our  State  courts  have,  in  the  main,  followed 
the  principle  laid  down  in  these  decisions,  though 
they  have  not  given  quite  so  broad  an  interpreta- 
tion to  the  term  "irregularities."^  A  distinction 
must,  of  course,  be  made  between  mere  irregular- 
ities in  compliance  with  the  law  and  acts  which 
fall  entirely  outside  of  the  authorization  of  the 
law. 

These  decisions  certainly  warrant  us  in  conclud- 
ing that  officers  authorized  to  issue  bonds  have 
power  to  determine  that  the  conditions  of  the 
law  have  been  complied  with;  that  the  decision 
of  such  officers  to  that  effect  is  binding  upon  the 
State;  and  that  the  recitals  of  the  bonds  duly 
signed  by  such  officei"S  that  said  conditions  have 
been  complied  with,  is  the  only  evidence  which 
the  bondholder  must  produce  in  order  to  establish 
the  validity  of  his  bonds. 

If  the  specific  cases  of  repudiation  on  the 
grounds  of  illegality  described  in  preceding 
pages  be  adjudged  in  accordance  with  the  prin- 
ciples of  the  law  here  laid  down,  it  will  be  found 
that  some  of  them  were  legall}'  justifiable,  but 
that  others  were  not.  It  is  not  essential  to  our 
present  purpose  to  show  which  ones  were  thus 
justified  and  which  were  not:  the  fact  just  stated 
is  sufficient.  Something  more  is  needed  to  estab- 
lish the  invalidity  of  a  bond,  even  in  the  eyes  of 
the  law,  than  the  fact  that  in  its  issue  the  precise 

1  Burroughs:  "  Law  of  Public  Securities,"  p.  320  sg. 


210  BEPUDIATION  OF  STATE  DEBTS 

conditions  of  the  law  authorizing  it  have  not 
been  complied  with.  The  rights  of  innocent  and 
bona  fide  bondholders  are  not  thus  summarily  to 
be  disposed  of.  It  is  necessary  for  this  purpose 
to  establish  that  the  law  authorizing  the  bonds 
was  unconstitutional,  or  that  the  alleged  irregu- 
larity in  their  issue  amounted  to  the  setting  aside 
of  the  law  entirely,  and  then  it  is  a  question  upon 
which  the  Supreme  Court  of  the  United  States 
and  our  State  courts  do  not  agree  —  whether  the 
recitals  of  the  officers  authorized  to  issue  the  bonds 
do  not  bind  the  State. 

The  question  arises  at  this  point  whether  it  is 
expedient  that  the  State  should  in  all  cases  take 
advantage  of  her  right,  and  repudiate  whenever 
such  a  proceeding  would  be  sanctioned  by  the 
courts.  The  answer  to  this  question  should  de- 
pend upon  the  gravity  of  the  case.  It  would  be 
unwise  to  lay  it  down  as  a  general  principle  that 
the  State  should  adopt  this  course  of  procedure 
or  the  opposite  in  all  cases.  It  is  necessary  to  dis- 
criminate, and  in  each  case  to  set  over  against  each 
other  the  advantages  and  disadvantages  of  repudi- 
ation. While  the  presumption  in  the  circumstances 
supposed  may  be  in  favor  of  repudiation,  it  is  easy 
to  adduce  cases  in  which  such  a  course  would 
greatly  injure  the  State,  as  well  as  do  rank  injus- 
tice to  her  creditors.  The  equities  of  the  case  and 
the  interests  of  the  State's  credit  should  have 
great  weight  in  doubtful  cases. 


THE  CAUSES  OF  hepudiation.         211 

In  equity  inquiry  should  always  be  made  into  the 
innocency  or  fraud  of  the  creditor.  In  many  cases 
in  this  country  men  have  secured  the  bonds  of  the 
State  through  connivance  and  fraud,  without  part- 
ing with  a  dollar  of  their  money.  Cases  of  this 
sort  should  not,  of  course,  be  treated  with  leniency, 
and  repudiation  of  the  debt  would  be  the  proper 
course,  unless  greater  injury  than  that  involved  in 
the  fraud  would  thereby  come  to  the  State.  On 
the  other  hand,  it  is  beneath  the  dignity  of  the 
State  and  injurious  to  public  moi-als  to  repudiate 
the  bonds  of  an  innocent  holder  who  has  parted 
with  his  money  in  good  faith  and  possibly  in  part 
from  patriotic  motives.  Only  when  the  higher  in- 
terests of  the  State  clearly  demand  such  a  procedure 
should  slie  take  advantage  of  her  legal  rights  under 
such  circumstances. 

A  second  point  worthy  of  careful  consideration 
in  case  tlie  illegality  of  a  debt  has  been  established, 
pertains  to  the  question  whether  or  not  the  State 
has  enjoyed  the  benefit  of  the  borrowed  money. 
In  some  of  the  cases  referred  to  the  repudiated 
bonds  had  been  issued  in  aid  of  railroads  and  other 
public  works,  from  which  the  State  received  no 
benefit  whatever;  in  others  the  money  obtained  by 
the  loan  was  used  for  the  payment  of  the  ordinary 
and  regular  expenses  of  the  government.  The 
question  naturally  arises  whether  the  State  is  jus- 
tified in  refusing  to  pay  back  money  which,  though 
obtained  by  her  officers  without  her  consent,  was 


212  REPUDIATION  OF  STATE  DEBTS. 

nevertheless  accepted  and  used  by  her.  In  the 
case  of  an  individual  we  would  have  no  hesitation 
in  answering  this  query  in  the  negative.  The  fact 
that  the  principal  received  and  expended  the  money 
which  his  agent  borrowed  in  his  name,  even  though 
without  his  consent,  would,  in  the  judgment  of  any 
civilized  community,  make  the  debt  binding  and 
legitimate.  The  case  of  a  State  is  not  strictly 
analogous  to  this,  because  the  acceptance  and  ex- 
penditure of  the  money  directly  are  impossibili- 
ties. Agents  must  act  for  her  here  as  well  as  in 
the  matter  of  borrowing,  and  collusion  between 
these  two  sets  of  agents  is  possible,  if  there  are 
two  sets ;  and,  of  course,  if  the  same  persons  both 
borrow  and  expend  the  money,  furtlier  investiga- 
tion would  be  needed  in  order  to  discover  the  obli- 
gation of  the  State.  The  case  of  the  State,  then, 
is  really  analagous  to  that  of  an  individual  whose 
agent  borrowed  money  without  his  consent,  and 
also  expended  it.  To  establish  the  obligation  of 
the  principal  to  pay  the  debt  under  such  circum- 
stances, it  would  be  necessary  to  establish  the  fact 
that  the  agent  acted  in  the  expenditure  with  his 
consent.  In  like  manner,  if  investigation  develops 
the  fact  that  money  illegally  borrowed  was  expended 
with  the  full  and  legally  expressed  consent  of  the 
people's  representatives,  it  is  difficult  to  escape 
the  conclusion  that  the  State  is  under  moral  obli- 
gations to  pay  the  debt. 

Aside  from  the  equity  of  the  case,  a  failure  to 


TUB  CAUSES  OF  liEPUDlATIOK.  213 

observe  which  will  disgrace  the  State  and  inflict  a 
blow  upon  public  morality,  the  maintenance  of  the 
State's  credit  demands  that  she  shall  not  repudiate 
her  bonds  except  in  the  most  extreme  cases.  It  is 
probable  that  repudiation,  even  under  such  circum- 
stances, would  render  it  difficult  to  borrow  again. 
The  money-loaning  public  is  extremely  sensitive. 
It  does  not  easily  appreciate  nice  constitutional  and 
legal  points.  Especially  difficult  is  it  to  convince 
this  public  that  the  State  which  accepts  and  uses 
borrowed  money,  and  then  refuses  to  pay  it  back  in 
due  time,  is  not  guilty  of  robbery.  Tlie  fact  that 
irregularities  in  the  issue  of  the  bonds  have  taken 
from  the  creditor  all  remedy  in  the  courts,  does  not 
prevent  him  from  making  the  determination  that 
he  will  not  again  risk  his  money  in  such  a  manner. 
Even  under  circumstances  the  most  favorable  to  the 
State,  repudiation  shakes  the  public  faith  in  public 
securities. 

Our  own  experience  in  this  matter  cannot  be 
conclusive  on  the  point  under  discussion,  for  most 
of  the  cases  of  repudiation  recorded  in  the  pre- 
vious chapters  cannot  be  legally  justified  ,•  but  it 
may,  nevertheless,  be  interesting  in  this  connection 
to  note  the  fluctuations  in  State  securities  during 
a  part  of  the  decade  of  repudiation.  The  follow- 
ing table  was  compiled  by  Hon.  Robert  P.  Porter, 
and  was  published  in  the  International  Review  for 
1880. 


214  REPUDIATION  OF  STATE  DEBTS. 

Fluctuations  in  State  securities  from  1872  to  1879, 
inclusive^  with  the  average  value  for  the  same 
time  :  — 

Aver- 

StATES.  1872     1873     1874     1875     1876    1877     1878    1879    age. 

Maine     ...     100    100    100    100    100    100    100    100    100 

New  Hampshire,  100    100    100    100    100    100    100    100    100 


Vermont  .  . 

100 

100 

100 

100 

100 

100 

100 

100 

100 

Massachusetts  . 

103 

103 

103 

103 

103 

103 

103 

103 

103 

Rhode  Island  . 

99 

99 

99 

102 

107 

110 

105 

110 

104 

Connecticut 

99 

99 

99 

103 

105 

109 

106 

106 

103 

New  York  .  . 

104 

105 

106 

109 

110 

113 

115 

114 

110 

Pennsylvania  . 

99 

100 

100 

100 

100 

100 

]00 

100 

99 

Maryland  .  . 

102 

102 

102 

102 

102 

102 

102 

102 

102 

Virginia   .  . 

50 

42 

35 

35 

44 

39 

36 

36 

38 

North  Carolina, 

21 

29 

21 

30 

19 

24 

24 

33 

25 

South  Carolina, 

34 

27 

15 

28 

31 

32 

31 

11 

20 

Georgia   .  . 

73 

87 

68 

81 

98 

101 

104 

107 

90 

Alabama  .  . 

90 

57 

25 

43 

26 

26 

29 

60 

45 

Louisiana  .  . 

68 

50 

19 

25 

35 

39 

61 

67 

46 

Texas  .  .  . 

88 

73 

83 

95 

101 

101 

101 

101 

93 

Arkansas  .  . 

50 

30 

19 

12 

15 

11 

8 

7 

19 

Tennessee  .  . 

65 

79 

69 

38 

44 

42 

35 

33 

53 

Kentucky  .  . 

96 

96 

98 

100 

101 

101 

101 

101 

99 

Ohio   .  .  . 

100 

101 

100 

102 

107 

106 

104 

106 

103 

Indiana   .  . 

100 

102 

100 

99 

100 

100 

100 

100 

100 

Illinois  .  .  . 

99 

95 

95 

99 

101 

100 

102 

103 

99 

Michigan  .  . 

98 

97 

94 

102 

105 

104 

104 

107 

101 

Missouri  .  . 

94 

90 

96 

95 

101 

103 

104 

105 

98 

California  .  . 

110 

110 

110 

105 

105 

105 

105 

105 

107 

TIlis  table  clearly  shows  the  deadly  influence  of 
repudiation  on  State  credit.  It  shows  also  that  in 
this  country,  at  least,  the  money-loaning  public 
does  not  distinguish  between  cases  of  justifiable 
and  unjustifiable  repudiation,  but  has  condemned 
all  indiscriminately. 

The   inquiry   upon  which   we   entered   in   this 


THE  CAUSES  OF  REPUDIATION.  215 

chapter  has  advanced  but  one  step.  The  illegal 
character  of  bonds  is  but  one  of  many  causes  of 
repudiation  in  this  country.  In  some  cases,  as  we 
have  seen,  illegality  was  simply  alleged  as  a  pretext 
to  cover  up  the  real  condition  of  affairs.  In  all 
cases  it  was  accompanied  and  re-enforced  by  other 
more  or  less  potent  causes.  In  our  further  inquiry 
we  must  go  behind  and  below  the  phenomena,  and 
look  deeper  into  the  public  mind  for  the  explanation 
which  we  seek.  Four  topics  must  be  considered  in 
this  connection:  Tlie  heavy  pressure  of  debts  on  the 
repudiating  States ;  the  corruption  of  State  officials ; 
the  financial  crisis  of  1837;  and  the  Civil  War. 

No  one  can  examine  the  facts  presented  in  the 
previous  chapters  without  being  impressed  with  the 
magnitude  of  the  debt  of  the  repudiating  States. 
At  about  the  time  of  the  appearance  of  the  sen- 
timent in  favor  of  repudiation  in  these  States,  the 
debts  which  were  imminent,  including  both  those 
recognized  and  unrecognized,  were  somewhat  near 
the  following  figures :  In  Arkansas,  f  8,600,000,  be- 
sides about  $5,000,000  of  bonds  issued  to  railroads  : 
in  Florida,  $4,850,000 ;  in  Georgia,  $11,135,500  ; 
in  Louisiana,  $22,500,000  ;  in  Mississippi,  $7,000,- 
000  ;  in  Virginia,  $45,000,000 ;  in  North  Carolina, 
$15,000,000 ;  in  South  Carolina,  $15,850,000 ;  in 
Alabama,  $11,345,000  ;  in  Tennessee,  $43,950,000. 

If  we  reckon  the  average  rate  of  interest  paid  at 
five  per  cent,  which  is  below  the  correct  figure,  the 
annual  interest  charges  rej^resented  by  these  debts 


216  BEPUDIATION  OF  STATE  DEBTS. 

are  about  as  follows :  In  Arkansas,  1433,000,  besides 
about  $247,000  for  which  she  was  liable  in  case  the 
railroads  defaulted ;  in  Florida,  $242,000  ;  in  Geor- 
gia, $556,000  ;  in  Louisiana,  $1,121,000  ;  in  Missis- 
sippi, $350,000  ;  in  Virginia,  $2,250,000  ;  in  North 
Carolina,  $750,000  ;  in  South  Carolina,  $792,000; 
in  Alabama,  $567,000;  in  Tennessee,  $2,192,000. 

The  total  amount  raised  by  taxation  in  these 
States  at  about  the  time  to  which  these  figures 
refer  indicate  that  such  interest  charges  as  these 
were  really  seriously  burdensome.  When  Florida 
was  threatened  with  an  annual  interest  charge  of 
about  $200,000,  her  total  revenue  was  less  than 
$100,000  per  annum.  The  interest  on  Virginia's 
debt  in  1870  amounted  to  about  $2,000,000,  while 
her  income  for  1869  did  not  reach  $3,000,000.  An 
interest  charge  of  $700,000  and  more  hung  over 
North  Carolina  when  her  taxes  yielded  only  a  lit- 
tle over  $500,000.  The  interest  on  Alabama's 
funded  debt  amounted  to  over  $500,000  at  a  time 
when  her  income  from  taxation  amounted  to  only 
a  little  over  $800,000. 

Such  facts  as  these  do  not  furnish  an  argument 
in  favor  of  repudiation.  The  States  could  un- 
questionably have  endured  a  much  heavier  weight 
of  taxation,  and  the  enormous  increase  in  the 
wealth  of  the  Southern  States  during  the  last 
decade  shows  that  they  were  becoming  year  by 
year  better  able  to  bear  heavy  burdens  of  indebted- 
ness.    It  would  in  every  case  have  been  possible 


THE  CAUSES  OF  REPUDIATION.  217 

to  arrange  with  bondholders  for  the  payment  of 
both  principal  and  interest  at  some  future  time 
when  the  resources  of  the  State  should  be  greater. 
Any  bondholder  would  have  preferred  such  an 
arrangement  to  the  repudiation  of  his  bonds. 
Other  expedients  might  have  been  devised.  But 
wliile  these  facts  do  not  furnish  an  argument  in 
favor  of  repudiation,  they  certainly  help  to  explain 
the  fact.  It  is  not  surprising  that  tax-payers 
sought  ways  and  means  of  avoiding  such  burdens, 
and  that  they  grasped  at  every  straw  which  offered 
them  hope. 

It  is  still  easier  to  understand  the  sentiment  in 
favor  of  repudiation  when  we  remember  that  in 
most  cases  the  debts  which  gave  the  greatest 
weight  to  this  burden  were  rolled  upon  the  shoul- 
ders of  the  States  by  defaulting  and  bankrupt 
railroad  or  banking  corporations  whose  enterprises 
the  State  had  attempted  to  advance  by  indorsing 
their  bonds  or  by  issuing  bonds  to  them  directly. 
The  people  felt  that  these  debts  were  not  their 
own ;  that  they  were  about  to  be  heavily  taxed  in 
order  to  foot  the  bills  of  speculators  who  had  very 
likely  emerged  from  a  cloud  of  bankruptcy  with 
well-lined  pockets.  The  matter  was  made  still 
woi-se  by  the  fact  that  in  most  cases  the  property 
mortgaged  to  the  State  for  security  was  of  little 
value  when  the  mortgage  was  foreclosed.  Georgia 
secured  some  railroad  property,  the  utilization  of 
which  plunged  her  still  more  deeply  into  debt. 


218  REPUDIATION   OF  STATE  DEBTS. 

Tennessee  had  the  same  experience.  In  many 
cases  the  roads  mortgaged  defaulted  before  their 
completion,  and  the  State  obtained  by  foreclosure 
only  a  few  miles  of  graded  track  which  could  be 
sold  simply  for  railroad  purposes,  and  that  at  a  great 
sacrifice,  and  which  the  State  was  in  no  condition 
to  utilize  for  herself.  When  the  enterprises  aided 
were  banks,  as  in  the  cases  of  Mississippi,  Florida, 
and  Tennessee  in  part,  the  matter  was  still  worse, 
for  usually  the  State  had  invested  heavily  in  bank 
stock,  which  became  worthless  when  the  banks 
failed.  It  is  exceedingly  hard  for  a  man  to  pay  a 
note  which  he  has  indorsed  for  the  accommoda- 
tion of  a  friend.  Unquestionably  many  such  debts 
would  be  repudiated  if  their  payment  could  not  be 
enforced  by  the  courts.  It  is  very  much  harder  to 
pay  heavy  taxes  on  account  of  the  failure  of  cor- 
porations in  which  one  has  no  direct  interest.  The 
former  sacrifice  is  compensated  in  part  by  the 
gratitude  of  the  friend,  and  the  hope  that  he  may 
pay  back  the  sum  in  the  future ;  but  for  the  latter 
there  is  no  compensation  of  a  positive  nature. 
Public  honor,  or  the  desire  to  save  the  State  from 
the  disgrace  of  breaking  her  plighted  faith,  are 
the  only  motives  to  the  payment  of  such  a  debt. 

A  second  source  from  which  we  may  draw  for  a 
partial  explanation  of  the  repudiation  sentiment 
in  some  of  our  States  is  the  belief  in  the  extrava- 
gance and  corruption  of  the  State  governments. 
That  this  belief  was  often  well  founded  is  attested 


THE  CAUSES  OF  REPUDIATION.  219 

by  an  abundance  of  facts  in  the  case  of  at  least 
two  States. 

While  the  greater  part  of  the  debt  of  South 
Carolina  was  being  contracted,  the  legislature  of 
that  State  was  in  the  hands  of  a  horde  of  ignorant 
men  who  cared  only  for  their  own  gains.  The 
report  of  the  Joint  Investigating  Committee  on 
the  public  frauds  of  South  Carolina  contains  in 
the  space  of  about  nine  hundred  pages  a  record  of 
fraud  and  extravagance  which  is  unequalled  in  the 
annals  of  this  country,  and  hardly  surpassed  in 
those  of  any  other.  Speaking  of  the  extravagance 
of  the  legislatures  of  this  period  as  compared  with 
the  economy  of  those  of  previous  periods,  a  writer 
in  the  International  Review  ^  uses  the  foUoAving 
language :  "  The  old  legislature  had  been  contented 
with  five-dollar  clocks ;  the  new  one  purchased  six- 
hundred-dollar  clocks.  Forty-cent  spittoons  gave 
way  to  eight-dollar  cuspidors ;  four-dollar  benches 
were  abolished  to  give  place  to  two-hundred-dollar 
crimson  plush  sofas.  The  legislator  who  was  con- 
tent to  serve  his  State  upon  a  dollar  chair,  in  the 
new  era  leisurely  lounged  upon  sixty-dollar  plush 
Gothic  chairs ;  eighty  dollar  library  desks  took  the 
place  of  four-dollar  pine  tables ;  and  twenty-five-cent 
hat  pegs  were  abolished  to  give  place  to  thirty- 
dollar  hat-racks ;  ten-dollar  office  desks  were  aban- 
doned, and  others  costing  one  hundred  and  seventy- 
five  dollars  substituted ;  coats  that  formerly  hung 

1  Hon.  R.  P.  Porter  in  November  number,  1880. 


220  KEPUDIATION  OF  STATE  DEBTS. 

upon  fifty-cent  coat-hooks  were,  under  the  new 
dispensation,  carefully  put  away  in  one-hundred- 
dollar  wardrobes  ;  cheap  matting  was  taken  up  and 
body  Brussels  substituted  ;  the  finest  Havana  cigars 
took  the  place  of  clay  pipes,  champagne  of  whiskey, 
six-hundred-dollar  mirrors  of  four-dollar  looking- 
glasses,  while  six-hundred-dollar  brocatel  curtains 
and  lambrequins  adorned  the  windows  from  which 
formerly  hung  two-dollar  curtains."  ^ 

During  this  carnival  of  extravagance  enormous 
debts  were  contracted,  the  amount  of  which  could 
not  be  accurately  estimated  on  account  of  the  con- 
fusion of  the  public  records.  Legislative  committees 
unearthed  the  most  gigantic  frauds,  and  completely 
destroyed  the  confidence  of  the  people  in  the 
validity  of  the  greater  part  of  the  State  debt. 

The  investigations  made  by  legislative  commit- 
tees of  the  State  of  Georgia  revealed  a  most  sus- 
picious mass  of  facts  concerning  the  official  acts  of 
those  concerned  in  the  negotiation  of  many  of  her 
bonds.  One  of  her  governors  practically  confessed 
his  complicity  in  bond  swindling  schemes  by  re- 
signing his  office  and  fleeing  the  country.  Other 
officials  were  suspected  of  the  same  crime,  though 
direct  and  absolute  proof  was  not  obtained.  What- 
ever the  facts  may  have  been,  it  is  unquestioned 
that  the  impression  went  forth  among  the  people 
of  the  State  that  they  had  been  fearfully  swindled 
by  those  to  whom  they  had  intrusted  the  reins  of 

1  For  further  facts,  see  Appendix  VI. 


THE  CAUSES  OF  REPUDIATION.  221 

government.  Fraud  was  also  charged  against  the 
State  governments  of  Alabama,  Tennessee,  and 
Louisiana. 

It  is  not  necessary  for  our  purpose  to  show  that 
these  charges  were  true.  It  is  sufficient  to  indi- 
cate the  fact  that  the  impression  that  tliey  were 
true,  or  the  fear  that  they  might  be  true,  was 
prevalent  among  the  people,  and  was  intensified 
in  their  representatives.  That  such  an  impression 
tended  to  create  a  sentiment  in  favor  of  repudia- 
tion, there  can  be  little  doubt.  Overburdened 
tax-payers,  even  though  their  respect  for  public 
morality  may  be  very  high,  will  not  fail  to  give 
themselves  the  benefit  of  any  doubts  concerning 
the  justice  of  the  burdens  they  are  called  upon  to 
bear. 

No  analysis  of  the  causes  of  repudiation  in  this 
country  can  approximate  completeness  which  does 
not  include  the  characteristics  of  tlie  two  periods 
of  our  history  in  which  these  events  occurred.  A 
reference  to  the  dates  of  the  passage  of  the  repu- 
diation acts  which  have  been  described,  will  show 
the  limits  of  these  periods.  To  the  first  belong 
Florida  and  Mississippi.  The  former  State  adopted 
the  constitution  which  committed  lier  to  repudia- 
tion in  1845,  and  the  message  of  the  Governor  of 
the  latter  State,  in  which  repudiation  was  first  sug- 
gested, was  given  to  the  public  in  January,  1841. 
Most  of  the  other  States  passed  their  repudiation 
acts  in  the  decade  between  1870  and  18$"0. 


222  REPUDIATION  OF  STATE  DEBTS. 

In  the  early  forties,  the  first  period  to  be  con- 
sidered, the  people  of  our  country  were  in  the 
midst  of  the  gloom  and  despair  which  succeeded 
the  terrible  financial  crisis  of  1837  and  1838,  and 
which  brought  financial  ruin  to  thousands.  To 
appreciate  the  state  of  the  public  mind  at  this 
time,  it  is  necessary  to  recall  the  circumstances 
which  led  to  that  crisis. 

The  seven  years  preceding  were  declared  by  a 
prominent  judge  of  that  period,^  to  be  ''one  of 
the  most  extraordinary  financial  periods  —  perhaps 
the  most  extraordinary  one  —  which  the  world  has 
ever  seen.'*  Ever  since  the  close  of  the  War  of 
1812,  and  the  Napoleonic  wars  in  Europe,  our 
country  had  experienced  unparalleled  prosperity. 
Our  population  had  increased  from  seven  to  seven- 
teen millions.  Manufactures  had  been  success- 
fully started,  and  were  producing  a  quantity  of 
some  commodities  sufficient  not  only  to  supply 
our  own  wants,  but  also  to  supply  the  material  for 
a  respectable  export  trade.  Our  commerce  had 
been  enormously  increased  as  a  result  of  this  and 
such  other  causes  as  a  vast  increase  in  the  per 
capita  production  of  agricultural  products,  the 
opening  up  of  our  mineral  resources,  the  establish- 
ment of  peaceful  relations  with  England  and 
France,  and  the  natural  development  of  American 
enterprise.  New  territories  of  vast  extent  had 
been  opened  to  enterprise  and  speculation  by  an 

1  Jud^e  Curtis  in  North  American  Review  for  January,  1844. 


TUE  CAUSES  OF  UEPUDIATION.  223 

enormous  extension  and  improvement  of  the  means 
of  communication,  notably  by  the  building  of  canals 
and  railroads.  Cities  had  grown  up  in  an  incredi- 
bly short  time,  in  the  midst  of  wildernesses.  In 
fact,  everything  in  the  line  of  material  prosperity 
seemed  to  be  within  our  gi'asp,  and  we  became  a 
wonder  to  ourselves  and  to  the  rest  of  the  world. 

The  writer  just  referred  to  eloquently  described 
our  attainments  during  this  period  in  the  follow- 
ing words :  "  The  stories  of  the  old  poets  concern- 
ing heroes  who  built  cities  by  the  shore  of  the  sea, 
and,  by  their  mighty  energies  and  the  direct  assist- 
ance of  the  divine  power,  created  states  that  were 
secured  by  laws,  supplied  by  industry,  and  adorned 
with  the  arts  of  life,  do  not  sound  incredible  or 
strange  in  our  ears.  In  the  lifetime  of  one  gene- 
ration we  have  seen  an  extent  of  wilderness  that 
seemed  illimitable  divided  into  cultivated  farms ; 
solitary  inland  seas  made  glad  with  the  presence 
of  an  active  and  prosperous  commerce;  great 
rivers,  whose  waters  formerly  reflected  only  the 
shadows  of  the  forest,  running  by  the  luxurious 
abodes  of  civilized  men,  and  bearing  the  varied 
products  of  labor ;  cities  which  are  already  worthy 
of  the  name,  filled  with  an  industrious  and  intelli- 
gent population,  springing  up  in  the  solitary  places  ; 
nay,  great  States,  whose  people  are  reckoned  by 
millions,  brought  into  existence  and  established 
during  this  short  period." 

The   remarkable  financial  era  of  which  Judge 


224  BEPUDIATION  OF  STATE  DEBTS. 

Curtis  spoke  was  produced  in  part  by  this  great 
material  progress,  and  in  part  by  a  combination  of 
circumstances  which,  if  not  entirely  fortuitous,  was 
at  least  very  unusual.  The  use  of  bills  of  exchange 
became  general  during  this  period,  which  vastly 
increased  our  facilities  for  foreign  commerce,  and 
was  equivalent  to  a  large  addition  to  our  com- 
mercial capital.  While  this  change  in  the  methods 
of  exchange  was  in  progress,  the  war  against  the 
United  States  Bank  was  being  carried  on.  As  a 
result  of  this,  deposits  were  transferred  to  State 
banks,  and  local  banks  were  multiplied  all  over 
the  Union.  The  nominal  capital  of  banks  of  this 
class  was  increased  from  one  hundred  and  ten  to 
two  hundred  and  twenty  millions  between  the 
years  1830  and  1837.  The  country  was  flooded 
with  the  notes  of  these  banks,  which,  together 
with  the  practical  increase  in  our  circulating 
medium,  caused  by  the  rapid  development  of  the 
credit  system,  produced  inflation  and  an  unnatural 
rise  of  prices  which  exaggerated  the  substantial 
progress  which  the  country  was  experiencing.  In 
addition  to  all  this  the  States,  in  1836,  received 
subsidies  from  the  treasury  of  the  United  States, 
in  the  form  of  shares  of  the  surplus  revenue, 
which  was  then  being  distributed. 

Under  the  influence  of  all  this  stimulus  both 
States  and  individuals  became  intoxicated,  and 
contracted  obligations  in  the  most  reckless  fashion. 
The   former  embarked  in  gigantic  enterprises  in 


THE  CAUSES  OF  REPUDIATION.  225 

the  form  of  public  works,  to  pay  for  which  millions 
of  dollars  of  bonds  were  issued.  These  sold  readily 
at  good  prices  in  the  markets  of  Europe.  Finan- 
ciers the  world  over  had  unbounded  confidence  in 
our  good  faith,  for  we  had  just  (in  1836)  per- 
formed the  unusual  feat  of  paying  off  a  national 
debt ;  and  the  same  circumstances  which  gave  us 
confidence  in  ourselves  dispelled  any  doubts  which 
might  at  one  time  have  entered  their  minds  con- 
cerning our  ability  to  pay  almost  any  amount  of 
debts. 

The  influx  of  the  millions  of  foreign  capital 
which  represented  the  proceeds  of  these  bonds, 
added  to  the  stimulus  produced  by  the  inflated 
bank  issues,  the  government  subsidies,  and  the 
real  industrial  progress  of  the  nation,  and  the 
result  was  an  epidemic  of  reckless  speculation 
which  spread  throughout  the  business  world,  and 
did  not  exempt  from  its  influence  the  humblest 
classes.  In  the  words  again  of  Judge  Curtis, 
"Some  who,  in  former  times,  would  have  found 
occupation  suited  to  their  daring  tempers  in  the 
field,  embarked  their  recklessness  in  commerce ; 
othei-s,  whose  rashness  under  ordinary  circum- 
stances would  have  been  soon  checked  by  disaster, 
or  prevented  from  showing  itself  by  want  of  means, 
found  that  their  energy  and  love  of  adventure  had 
made  them  leaders ;  and  others  still,  whose  fears 
would  have  been  roused  by  danger,  lost  all  hesita- 
tion in  the  general  confidence.     Men  acted  as  if  a 


226  REPUDIATION  OF  STATE  DEBTS. 

short  and  secure  road  to  wealth  had  been  dis- 
covered on  which  all  might  travel,  and  he  who 
went  fastest  would  be  the  first  to  reach  the  desired 
end.  The  result  was  such  a  morbid  tendency  to 
excess  in  all  financial  affairs  as  had  never  before 
been  witnessed.  .  .  .  All  uses  of  capital  seemed 
to  be  followed  by  certain  and  large  returns,  and 
men  were,  therefore,  eager  to  borrow.  All  pur- 
suits appeared  to  be  safe  and  prosperous,  and, 
therefore,  those  who  had  money  were  desirous  to 
lend  it.  So  much  security  was  felt  that  little  was 
asked ;  and  to  obtain  money  nothing  more  was 
necessary  than  to  show  the  lender  that  it  was  to 
be  employed  in  some  magnificent  scheme  which 
stood  well  with  the  large  expectations  of  the  time, 
and  was  in  season  with  the  glorious  summer  of 
men's  hopes." 

Such  was  the  state  of  the  public  mind  on  the 
eve  of  the  great  financial  crisis  of  1837.  Only 
a  few  of  the  most  conservative  and  far-sighted 
saw  that  these  great  hopes  and  expectations  and 
this  unparalleled  prosperity  were  based  upon  a 
greatly  infiated  currency  and  a  superstructure  of 
credit  which  could  not  long  sustain  the  weight 
which  was  resting  upon  it.  The  first  intimation 
of  the  true  state  of  affairs  came  from  London, 
when  the  Bank  of  England  stopped  the  credit 
of  several  American  banking  houses.  This  act 
was  rendered  necessary  by  the  flow  of  specie 
which  endangered  the  bank  itself. 


THE  CAUSES  OF  REPUDIATION.  227 

At  this  very  time,  notwithstanding  the  inflation 
of  our  currency  and  the  constant  influx  of  foreign 
capital,  the  demand  for  money  in  this  country  ex- 
ceeded the  supply,  and  this  cutting  off  of  the  means 
of  foreign  exchange  through  instruments  of  credit, 
together  with  Jackson's  specie  circular,  made  a 
demand  for  specie  which  could  not  possibly  be 
supplied.  At  once  there  was  a  general  call  for 
the  payment  of  obligations,  and  the  banks  were 
besieged  for  the  coin  which  they  did  not  possess 
and  could  not  obtain.  Temporary  expedients, 
such  as  the  issue  of  something  over  a  million  ster- 
ling bonds  by  the  Bank  of  the  United  States  of 
Pennsylvania,  were  of  little  avail,  and  the  inevi- 
table suspension  of  specie  payments  came.  With 
it  came  a  general  suspension  of  business. 

For  several  months  the  people  devoted  them- 
selves to  the  payment  of  their  debts  whenever  this 
was  possible,  and  to  the  settlement  of  their  affairs 
according  to  the  laws  of  bankruptcy  whenever  this 
was  not  possible.  There  was  a  general  redistri- 
bution of  the  wealth  of  the  country.  Thousands 
of  persons  lost  the  whole  or  a  large  part  of  their 
property,  and,  what  was  equally  as  bad,  no  money 
could  be  gotten  at  any  price  in  order  to  make  a 
fresh  start.  Even  wealthy  persons  found  it  diffi- 
cult to  get  the  money  needed  for  ordinary  ex- 
penses, and  in  many  States  the  average  farmer 
and  laborer  could  get  no  currency  at  all.  "  Fail- 
ures were  almost  innumerable.     Trade  had  fallen 


228  REPUDIATION  OF  STATE  DEBTS, 

oif,  and  when  prosecuted  was  hazardous.  A  deep 
gloom  settled  upon  men's  minds.  .  .  .  The 
people  were  amazed  at  their  own  disasters,  and 
afraid  to  act  in  any  way  lest  they  should  run  into 
new  mistakes."  The  bubble  of  prosperity  had 
burst,  and  men's  eyes  were  at  last  opened  to  the 
true  state  of  affairs. 

Many  of  the  States  were  no  better  off  than  in- 
dividuals. Pennsylvania,  Maryland,  Michigan, 
Mississippi,  Illinois,  and  Indiana  defaulted  in 
their  interest  payments.  The  period  of  debt 
contracting  had  suddenly  come  to  an  end.  No 
more  money  could  be  borrowed,  even  to  meet  the 
comparatively  small  amount  required  for  these  in- 
terest payments.  The  only  resort  was  to  increased 
taxation,  and  that  on  a  much  diminished  taxable 
basis.  The  feelings  of  tax-payers  may  be  ima- 
gined. These  debts  had  been  contracted  for  public 
works  which  the  people  had  expected  to  be  pro- 
ductive of  great  wealth.  It  had  not  for  a  moment 
been  imagined  that  they  could  be  the  occasion  of 
an  increase  in  the  tax  lev}'';  "and  when,  the  means 
of  the  State  exhausted,  it  was  discovered  that  the 
moneys  borrowed  must  be  paid  out  of  ordinary 
revenue,  the  public  was  filled  with  consternation." 
It  is  scarcely  surprising  that  at  such  a  time  creditor 
should  have  been  synonomous  with  enemy,  and 
that  a  public  creditor,  —  especially  when  the  claim 
which  he  held  was  believed  to  be  tainted  with 
fraud,  as  in  the  case  of  the  bonds  which  had  been 


THE  CAUSES  OF  REPUDIATION.  229 

issued  to  the  banks,  and  were  a  partial  cause  of 
their  disasters, — should  not  have  been  given  a 
fair  hearing.  Sound  reasoning  and  the  triumph 
of  the  highest  moral  principles  will  be  sought  in 
vain  in  the  average  man  under  such  circumstances. 
It  is,  of  coui-se,  greatly  to  be  regretted  that 
Mississippi  and  Florida  did  not  follow  the  good 
example  set  them  by  the  other  States  which  were 
suffering  from  the  same  malady.  They  issued 
due  bills  or  interest  certificates  for  the  sum  which 
they  found  themselves  unable  to  pay,  and  in  one 
way  and  another  passed  through  the  ordeal  with 
honor  and  credit  intact.  The  renewed  prosper- 
ity of  succeeding  yeai-s  enabled  them  to  repair 
the  damages  of  this  period,  and  to  meet  with  ease 
all  their  obligations.  Mississippi  and  Florida 
might  have  done  likewise  had  not  the  cr}-  of  il- 
legality been  raised  against  their  bonds.  The 
people  of  these  States  were  unable,  under  the  cir- 
cumstances, to  resist  the  temptation  to  repudiation 
which  this  pretext  furnished  them,  especially  after 
the  question  had  gotten  into  politics  and  the  fate 
of  party  measures  had  been  staked  upon  it.  What 
Mississippi  might  have  done  under  other  circum- 
stances it  is  useless  to  inquire ,  but  that  the  state 
of  mind  of  her  citizens  induced  by  their  disasters 
was  a  more  potent  cause  of  repudiation  than  the 
alleged  illegality  of  her  bonds,  no  one  who  studies 
the  subject  at  this  distance  of  time  and  in  the 
light  of  historical  facts  can  doubt. 


230  BEPUDIATION   OF  STATE  DEBTS. 

Turning  now  to  the  second  group  of  States, 
whose  acts  of  repudiation,  as  we  have  seen,  were 
passed  for  the  most  part  in  the  decade  between 
1870  and  1880,  we  note  that  all,  with  the  single 
exception  of  Minnesota,  were  seceders  from  the 
Union  in  1861.  This  fact  at  once  suggests  the 
question  whether  there  is  not  a  relation  of  cause 
and  effect  between  the  disasters  which  these 
States  suffered  during  the  Civil  War  and  the  period 
of  reconstruction  and  their  acts  of  repudiation. 
The  answer  to  this  question  will  appear  in  a 
consideration  of  the  effect  upon  these  States 
which  may  be  fairly  attributed  to  the  events  of 
this  unfortunate  period  in  our  history. 

1.  First  of  all  we  note  that  the  civil  war  greatly 
reduced  the  taxable  basis  of  these  States.  This  is 
made  evident  by  the  following  table,  which  shows 
the  total  assessed  valuation  of  property  for  tax- 
ation purposes  in  the  States  enumerated  for  the 
years  1860  and  1870.1 


1  These  figures  include  the  assessments  both  of  real  estate  and 
personal  property,  and  so  the  difference  between  the  figures  for 
1860  and  1870  may  be  partially  explained  by  the  emancipation  of 
the  slaves,  who  in  1870  no  longer  appeared  in  the  item  of  personal 
property,  but  who,  nevertheless,  should  not  be  left  out  of  any  esti- 
mate of  the  tax-paying  power  of  the  Southern  States.  The  infla- 
tion of  the  currency  in  1870  offsets  this  error  partially.  The 
assessment  of  real  estate  —  which  was  not  affected  by  the  disap- 
pearance of  slaves  from  the  category  of  property  —  shows  a  de- 
crease, not  so  great  as  that  indicated  in  the  table,  but  one  which 
was,  nevertheless,  enormous. 


THE  CAUSES  OF  REPUDIATION. 


231 


Per  cent  of 

1860. 

1870. 

decrease. 

Virginia    .    .    . 

$657,021,336 

$505,978,190 

23 

North  Carolina  . 

292,297,602 

130,378,190 

55.4 

South  Carolina  . 

489,319,128 

183,913,327 

62.4 

Georgia      .    .     . 

618,232,387 

227,219,519 

63.2 

Florida.     .     .     . 

68,929,685 

32,480,843 

52.9 

Alabama    .     .     . 

432,198,762 

155,582,595 

64 

Mississippi     .     . 

509,472,912 

177,27S,81K) 

65.5 

Louisiana  .     .    . 

435,787,265 

253,37  l,8iK) 

41.9 

Arkansas  .     .     . 

180,211,330 

(M,528,843 

47.5 

Tennessee .    .     . 

382,495,200 

253,782,161 

33.7 

2.  The  debts  of  these  States  were  increased 
enormously  during  this  period,  as  is  evident  from 
the  following  table :  ^  — 


Virginia  .     . 
North  Carolina 
Soutli  Carolina 
Georgia    . 
Florida     . 
Alabama  . 
Mississippi 
Louisiana 
Arkansas . 
Tennessee 


1800. 

$31,779,062 
9,699,000 
4,046,540 
2,670,750 
4,120,000 
6,700,000 
None 
4,561,109 
3,092,623 
20,898,606 


1870. 

$47,390,839 

29,900,045 
7,665,909 
6,544,500 
1,288,697 
8,478,018 
1,796,230 

25,021,743 
3,459,557 

88,539,802 


Highest 

point 

reached   by 

the  debt. 

$47,390,839 
29,900,045 
24,782,906 
20,197,500 

5,512,268 
31,952,000 

3,226,847 
40,416,734 
18,287,273 
41,863,406 


These  increased  debts  are  not  all,  of  course,  to 
be  attributed  either  directly  or  indirectly  to  the 
Civil  War,  but  a  very  large  proportion  of  the  in- 
crease is  thus  attributable.  A  considerable  portion 
of  it  represents  interest  which  accrued  during  the 
years  of  the  war,  the  States  being  utterly  unable 
to  pay  during  that  period.     This  item  of  increase 

1  Taken  from  R.  P.  Porter's  article  in  International  Bevieto  for 
November^  1880, 


232  REPUDIATION  OF   STATE  DEBTS. 

was  very  great  in  States  like  Virginia  and  Ten- 
nessee, whose  ante-war  debt  was  large.  Another 
large  item  of  increase  is  attributable  to  the  period 
of  reconstruction  and  of  carpet-bag  rule.  A  part 
of  this  represents  expenditures  which  were  neces- 
sary in  order  to  put  the  wheels  of  State  govern- 
ments again  into  operation,  but  another  and  a 
larger  part  represents  the  extravagance  of  the 
carpet-bag  regime.  Both  of  these  items  are  refer- 
able directly  or  indirectly  to  the  Civil  War.  Other 
debts  were  contracted  during  this  period  in  aid 
of  genuine  public  works,  and,  having  no  connec- 
tion with  that  struggle,  should  not  be  consid- 
ered here. 

3.  The  Civil  War  destroyed  the  idea  of  State 
sovereignty,  which  the  South  had  cherished  in 
ante-war  times,  and,  as  a  natural  and  logical 
result  of  this,  weakened  the  feeling  of  State 
responsibility.  Especially  did  the  States  believe 
themselves  devoid  of  responsibility  for  the  in- 
crease of  debts  due  to  the  interest  which  accumu- 
lated during  the  war  and  to  the  extravagance  of  the 
carpet-bag  regime.  Virginia's  debt  controversy 
concerned  this  very  point.  The  Riddleberger 
bill,  which  for  a  long  time  constituted  the  ulti- 
matum of  a  large  party  in  that  State,  was  based 
upon  a  calculation  of  the  indebtedness  of  the 
State  which  left  out  of  account  the  interest  which 
accumulated  during  the  war  and  the  interest  on 
that  sum  since  tlie  war  days.     Repeatedly  have 


THE  CAUSES  OF  REPUDIATION.  233 

the  Southern  States  disclaimed  responsibility  for 
certain  of  the  debts  contracted  during  the  period 
of  reconstruction.  The  military  governments, 
and  many  of  those  elected  during  the  carpet-bag 
rSgime^  were  quite  generally  regarded  as  usurpa- 
tions maintained  by  the  force  of  the  federal  gov- 
ernment, and  for  whose  acts  the  true  body  politic 
of  the  State  itself  was  not  responsible. 

4.  The  fourteenth  amendment  to  the  constitu- 
tion forced  these  States  to  repudiate  the  debts 
which  had  been  contracted  in  the  interests  of 
the  rebellion.  Viewed  from  the  standpoint  of  the 
States'  honor,  it  was  not  easy  for  loyal  Southern- 
ers to  distinguish  between  these  and  their  other 
public  debts.  It  was,  on  the  whole,  easier  for 
them  to  repudiate  the  latter  than  the  former,  since 
some  of  them  were  owed  to  Northern  capitalists, 
and  the  desire  to  avenge  themselves  upon  the 
North  for  the  disasters  they  had  suffered  was 
strong. 

When  all  these  circumstances  are  considered  in 
connection  with  the  fact  that  the  war  of  secession 
was  regarded  in  the  South  as  a  righteous  struggle, 
brought  on  that  section  through  no  fault  of  its 
own,  it  is  not  surprising  that  we  find  the  Southern 
people  in  a  state  of  mind  easily  susceptible  to 
arguments  favoring  repudiation. 

In  this  review  of  the  causes  of  repudiation  no 
account  has  been  taken  of  fundamental  differences 
of  character  between  the  Northern  and  Southern 


234         REPUDIATION  OF  STATE  DEBTS. 

people.  It  has  been  alleged  in  the  course  of  these 
debt  controversies  that  the  Southern  character  was 
unreliable  in  the  matter  of  debt  payment.  The 
fact  that  only  Southern  States  repudiated  during 
that  period  of  financial  embarrassment  which  suc- 
ceeded the  crisis  of  1837  might  be  regarded  as  proof 
of  this  unreliability.  Pennsylvania,  Indiana,  and 
Illinois  were  in  as  great  financial  straits  as  Missis- 
sippi, but  they  paid  their  debts  in  full,  while 
Mississippi  repudiated  a  portion  of  hers.  In 
Maryland,  on  the  border  line  between  the  North 
and  South,  a  party  arose  which  favored  repudia- 
tion, but  it  was  unable  to  carry  a  majority  of  the 
people  or  of  the  legislature  with  it.  In  speaking 
of  Mississippi,  Judge  Curtis  in  the  article  already 
several  times  referred  to  said  : 

"An  intelligent  foreigner,  who  feels  a  just 
indignation  when  he  hears  of  repudiation,  prob- 
ably knows  the  difference  between  a  Highland 
chieftain  and  a  London  merchant,  but  is  profoundly 
ignorant  that  differences  quite  as  great  exist 
between  the  people  of  Mississippi  and  the  people 
of  Massachusetts.  Probably  there  are  few  points 
in  which  these  differences  would  be  so  likely  to 
be  exhibited  as  upon  the  matter  of  paying  debts. 
To  pay  debts  punctually  is  the  point  of  honor 
among  all  commercial  peoples.  But  the  planters 
of  Mississippi  do  not  so  esteem  it.  They  do  neft 
feel  the  importance  of  an  exact  conformity  to 
contracts.     It  has  not  been  their  habit  to  meet 


THE  CAUSES  OF  REPUDIATION,  235 

their  engagements  on  the  very  day  if  not  quite 
convenient.  Certainly  tliey  attach  no  idea  of  dis- 
honesty to  such  a  course  of  dealing.  Tliey  mean 
to  pay,  but  they  did  not  expect  when  they  con- 
tracted the  debt  to  distress  themselves  about  the 
payment.  If  a  friend  wants  a  thousand  dollars 
for  a  loan  or  a  gift,  he  can  have  it,  though  perhaps 
a  creditor  wants  it  also.  We  do  not  mean  to  in- 
timate that  there  are  no  high  qualities  in  such  a 
character,  but  they  are  different  from  those  which 
make  good bankei's  and  merchants;  and,  therefoie, 
bankers  and  merchants  ought  not  to  expect  such 
men  to  look  at  a  debt  just  as  they  do." 

This  statement  was  written  in  1844,  and  prob- 
ably expresses  what  was  true  at  that  time.  Very 
likely  the  Southern  method  of  looking  at  debts 
and  the  obligation  to  pay  them  was  different  from 
the  Northern,  owing  to  the  differences  between  the 
industrial  characteristics  of  the  two  sections.  This 
fact  should  be  t;iken  into  consideration  in  account- 
ing for  the  repudiation  acts  belonging  to  the  fii-st 
period  described  above.  It  should  not  be  given 
equal  weight,  however,  in  the  period  after  the 
war.  That  the  industrial  character  of  the  Soutli 
had  then  changed  to  a  considerable  extent  i.; 
evinced  by  the  character  of  the  public  works  to 
the  construction  (A  which  the  Sttites  lent  their 
financial  aid.  The  desire  to  build  railroads  and 
canals  on  a  large  scale  indicates  the  presence  of 
the  commercial  spirit  which,  according  to  Judge 


236  REPUDIATION  OF  STATE  DEBTS. 

Curtis,  characterized  the  North  in  1844.  Ever 
since  the  close  of  the  great  civil  struggle  the 
North  and  South  have  been  growing  alike  in  oc- 
cupations, spirit,  and  character;  and  though  the 
new  South  was  only  in  its  early  infancy  in  the 
seventies,  the  commercial  spirit  which  character- 
izes it  had  begun  to  exert  its  influence.  What- 
ever effect  it  may  have  had,  however,  was  more 
than  neutralized  by  the  influences  which  have 
been  described  as  growing  out  of  the  Civil 
War.  Up  at  least  to  the  close  of  the  period  of 
reconstruction,  these  were  all  powerful  in  shap- 
ing the  thoughts  and  motives  of  the  Southern 
people. 

The  various  forces  which  have  been  reviewed, 
and  which  all  must  admit  have  been  potent  causes 
of  repudiation,  should  not  be  overlooked  in  any 
historical  estimate  of  the  moral  character  of  the 
actions  of  the  repudiating  States,  or  of  the  honesty 
and  integrity  of  the  people  who  compose  them. 
Many  of  them  were  certainly  temporary  and  ad- 
ventitious. It  is  highly  probable  that  the  com- 
binations of  circumstances  which  have  been 
described  as  characteristic  of  the  forties  and  the 
seventies  will  not  occur  again  in  our  history.  We 
should,  therefore,  be  slow  to  conclude  from  past 
experience  that  our  Southern  States  are  not  to  be 
relied  upon  for  the  payment  of  their  debts,  nor 
should  we  go  to  the  other  extreme  and,  placing 
implicit  confidence  in  our  people's  integrity,  con- 


THE  CAUSES   OF  REPUDIATION. 


237 


elude  that  no  safeguards  against  repudiation  are 
needed.  It  is  the  purpose  of  our  concluding 
chapter  to  show  that  such  safeguards  are  desirable, 
and  to  suggest  those  which  seem  best  adapted  to 
our  conditions. 


^^^    OF  TH".         >e^ 


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